Fairfax stock positions

[gfp]

Thanks Viking.  Looking forward to reading it this evening!

 

It is going to be hard to top last year's letter's 27 exclamation points in 33 pages so I will take the 'under.'

[Parsad]

2 hours ago, gfp said:

Thanks Viking.  Looking forward to reading it this evening!

 

It is going to be hard to top last year's letter's 27 exclamation points in 33 pages so I will take the 'under.'

 

It was a pretty darn good year, and his call on overpriced areas all came true...so bring on the exclamation points!  Cheers!

[gfp]

3 hours ago, Parsad said:

 

It was a pretty darn good year, and his call on overpriced areas all came true...so bring on the exclamation points!  Cheers!

 

It was a great report.  24 exclamation points not counting passages he was quoting.  I am impressed with his restraint as he ages.

 

My conclusion is that this company is worth more than $11 Billion usd.

[lessthaniv]

 

Quote

For our stock price to match our book value’s compound rate of 18.2%, our stock price in Canadian dollars should be $1,335. And our intrinsic value exceeds book value, a principal reason being that our insurance companies generate huge amounts of float at no cost. This is the reason we continue to hold total return swaps with respect to 1.96 million subordinate voting shares of Fairfax with a total market value of $968 million at year-end

 

[Parsad]

Terrific comprehensive letter!  The insurance engine is wound up tight...increasing premiums through 2021, into 2022 and likely 2023...still only writing at 1x statutory surplus (can go to 1.5x)...float and investments per share is enormous leverage if they get it right!

 

$630 USD per share book value, balance sheet in very good position, with investment side ready to pounce better than almost any other insurer...should be trading somewhere between $800-950 CDN per share...right now!  Cheers!  

[glider3834]

6 minutes ago, Parsad said:

Terrific comprehensive letter!  The insurance engine is wound up tight...increasing premiums through 2021, into 2022 and likely 2023...still only writing at 1x statutory surplus (can go to 1.5x)...float and investments per share is enormous leverage if they get it right!

 

$630 USD per share book value, balance sheet in very good position, with investment side ready to pounce better than almost any other insurer...should be trading somewhere between $800-950 CDN per share...right now!  Cheers!  

+1 

 

Still digesting - just flagging this one which I haven't seen before (or maybe I missed it) it looks like an Asia focused version of BDT 

 

'Since 2008 we have been investing with founder Kyle Shaw and his private equity firm ShawKwei & Partners, which takes significant stakes in middle-market industrial, manufacturing and service companies across Asia, partnering with management to help improve their businesses. We have invested $398 million in two funds (with a commitment to invest an additional $202 million), received cash distributions of $198 million and have a remaining value of $374 million at year-end. The returns to date are primarily from our investment in the 2010 vintage fund, which increased 46% in value in 2021 and has produced a compound annual return of approximately 16% since 2010. The 2017 vintage fund has drawn about 50% of committed capital to date, with a much-improved outlook for new deals, including its recent acquisition of CR Asia Group.'

 

Also I got my estimate of closing market value of Exco Resources wrong - Fairfax have marked it up by only 12% to $267 mil from $238 mil. I thought it would be marked up higher - Chou Funds increased their stake by higher percentage - different valuation method perhaps or maybe Chou Funds have increased their shares held/cost base which they didn't break out in quarterly reports? Anyway positive that Exco increased their total proved reserves by 85% in 2021.

 

 

[Viking]

On 3/4/2022 at 5:02 PM, glider3834 said:

+1 

 

Still digesting - just flagging this one which I haven't seen before (or maybe I missed it) it looks like an Asia focused version of BDT 

 

'Since 2008 we have been investing with founder Kyle Shaw and his private equity firm ShawKwei & Partners, which takes significant stakes in middle-market industrial, manufacturing and service companies across Asia, partnering with management to help improve their businesses. We have invested $398 million in two funds (with a commitment to invest an additional $202 million), received cash distributions of $198 million and have a remaining value of $374 million at year-end. The returns to date are primarily from our investment in the 2010 vintage fund, which increased 46% in value in 2021 and has produced a compound annual return of approximately 16% since 2010. The 2017 vintage fund has drawn about 50% of committed capital to date, with a much-improved outlook for new deals, including its recent acquisition of CR Asia Group.'

 

Also I got my estimate of closing market value of Exco Resources wrong - Fairfax have marked it up by only 12% to $267 mil from $238 mil. I thought it would be marked up higher - Chou Funds increased their stake by higher percentage - different valuation method perhaps or maybe Chou Funds have increased their shares held/cost base which they didn't break out in quarterly reports? Anyway positive that Exco increased their total proved reserves by 85% in 2021.

@glider3834 i also saw the disclosure of ShawKwei & Partners. Dec 31 Fairfax had $374 invested +$202 new $ = $575 million investment. This is material - making it a top 10 equity holding. Solid long term track record. I love the additional disclosure from Fairfax. It allows investors to better understand where the equity $ is parked.

 

The update on EXCO is timely. That business performed well in 2021. And it certainly looks well positioned as we start 2022. 
 

Fairfax certainly is well positioned with its various commodity holdings. Especially if the current boom in prices lasts into 2023.

- Stelco: steel

- Resolute Forest Products: lumber

- EXCO: nat gas

- Altius (royalties): copper, iron ore, coal, potash

- Foran: copper, zinc (2025 start?)

- Ensign Energy: oil drilling

[glider3834]

1 hour ago, Viking said:

@glider3834 i also saw the disclosure of ShawKwei & Partners. Dec 31 Fairfax had $374 invested +$202 new $ = $575 million investment. This is material - making it a top 10 equity holding. Solid long term track record. I love the additional disclosure from Fairfax. It allows investors to better understand where the equity $ is parked.

 

The update on EXCO is timely. That business performed well in 2021. And it certainly looks well positioned as we start 2022. 
 

Fairfax certainly is well positioned with its various commodity holdings. Especially if the current boom in prices lasts into 2023.

- Stelco: steel

- Resolute Forest Products: lumber

- EXCO: nat gas

- Altius (royalties): copper, iron ore, coal, potash

- Foran: copper, zinc (2025 start?)

- Ensign Energy: oil drilling

yes Viking, I also noticed that Fairfax has a $252 mil investment in oil & gas extraction business as well via their LPs/PE funds with 3P managers ( could be via BDT or other) 

 

 

 

Edited March 7, 2022 by glider3834

[Xerxes]

stupid Q:

 

These dealings with OMERS, does anyone know if it is based on personal relationship. i.e. if that someone leaves OMERS, that Fairfax does not have the same level of relationship that it had before. I would imagine OMERS being a large institution with large risk management team whereby everything is vetted. I realize OMERS is getting a good yield, but still it begs the question what happens when the OMERS contact moves forward to better opperunities in his/her career.

 

If it is purely institutional relationship than i guess it does not matter.

[StubbleJumper]

30 minutes ago, Xerxes said:

stupid Q:

 

These dealings with OMERS, does anyone know if it is based on personal relationship. i.e. if that someone leaves OMERS, that Fairfax does not have the same level of relationship that it had before. I would imagine OMERS being a large institution with large risk management team whereby everything is vetted. I realize OMERS is getting a good yield, but still it begs the question what happens when the OMERS contact moves forward to better opperunities in his/her career.

 

If it is purely institutional relationship than i guess it does not matter.

 

If someone from FFH even phones OMERS' general 1-800 number and offers 9% on $500m, you can bet that the call will be returned.  It's not dependent on a single relationship. 

 

 

SJ

[petec]

9 hours ago, StubbleJumper said:

 

If someone from FFH even phones OMERS' general 1-800 number and offers 9% on $500m, you can bet that the call will be returned.  It's not dependent on a single relationship. 

 

 

SJ

 

I am sure it is not, but Prem has explicitly named the head of OMERS as a partner in the past and I infer that there *is* a personal relationship at the top.

[Spekulatius]

FFH biggest holdings Eurobank, BB, to a lesser degree ATCO  and Fairfax India are down quite a bit. I bet the marks on Digit would be way lower to given the Fintech carnage. It's not like everything is going gangbusters here.

[StubbleJumper]

5 hours ago, Spekulatius said:

FFH biggest holdings Eurobank, BB, to a lesser degree ATCO  and Fairfax India are down quite a bit. I bet the marks on Digit would be way lower to given the Fintech carnage. It's not like everything is going gangbusters here.

That's to say nothing of the TRS.  FFHs share price is down $50 over the past few weeks.  What is 2m x $50?  

 

SJ

[TwoCitiesCapital]

1 hour ago, StubbleJumper said:

That's to say nothing of the TRS.  FFHs share price is down $50 over the past few weeks.  What is 2m x $50?  

 

SJ

 

In Q4, FFH's USD share price went from ~$400 to ~$500.

 

The current reversal "stinks", but ultimately would just be sending back about 1/2  of the cash the TRS minted in Q4 if we end the quarter near $450. 

 

 

[Thrifty3000]

People, people, please let us not forget how much we friggin love (and benefit from) wholesale panic-induced market selloffs that are no fault of Prem’s.

 

Many of those insurance premiums we’ll enjoy this year were paid up front, and now we just get to sit back and watch FFH buy up more of its own and others’ assets than we would have been able to had ol’ Vladdy P not been such a cotton headed ninny muggins.

 

These are the times when the oracles make us wealthier, while almost certainly giving us more intrinsic capacity to donate to causes like Ukrainian relief.

[StubbleJumper]

51 minutes ago, TwoCitiesCapital said:

 

In Q4, FFH's USD share price went from ~$400 to ~$500.

 

The current reversal "stinks", but ultimately would just be sending back about 1/2  of the cash the TRS minted in Q4 if we end the quarter near $450. 

 

 

Yep.  And as long as that cash payment from the counterparty from Q4 hasn't been spent already, it's no big deal.  But, it's a set up where if things go well for FFH, they go extra well because of the TRS.  But if they go poorly, they go extra poorly...

 

 

SJ

[Parsad]

54 minutes ago, Thrifty3000 said:

People, people, please let us not forget how much we friggin love (and benefit from) wholesale panic-induced market selloffs that are no fault of Prem’s.

 

Many of those insurance premiums we’ll enjoy this year were paid up front, and now we just get to sit back and watch FFH buy up more of its own and others’ assets than we would have been able to had ol’ Vladdy P not been such a cotton headed ninny muggins.

 

These are the times when the oracles make us wealthier, while almost certainly giving us more intrinsic capacity to donate to causes like Ukrainian relief.

 

I'm sure the analysts and managers are working overtime right now looking at corporate bonds and deals in Europe with the panic and drop.  Their commodity side is probably killing it.  And they will probably get some opportunities here in North America as well over the next 2-3 months.  Short-term pain for long-term gain folks!  Cheers!

[Santayana]

4 hours ago, Thrifty3000 said:

cotton headed ninny muggins.

Best Elf reference ever!

[glider3834]

Eurobank operating results for 2021 look solid, they exceeded 2021 guidance.

 

Guiding for EPS of euro 0.14 in 2022 versus share price of euro 0.83 (fwd PE 6x)  & P/TBV is 0.6 x. 

 

Obviously will be impacted by Ukraine situation even though they have little direct loan exposure. Still current valuation looks compelling IMHO.

 

https://www.moneyreview.gr/business-and-finance/69767/eurobank-neo-epicheirisiako-schedio-kai-dianomi-merismatos-se-pososto-20-apo-to-2022/

 

In detail, the financial objectives of the new business plan for the period 2022 - 2024 provide:

 

• Average increase in earnings per share of about 13% per year

• Dividend distribution from the year 2022 at a rate of approximately 20%

• Achieve a sustainable return on tangible equity of 10% per year.

• Creation of at least 100 capital units per year from profitability to finance the development, distribution of dividends and the strengthening of the capital position.

• Reduction of the non-performing loans ratio from 6.8% in 2021 to 4.8% in 2024, a goal reinforced by the low levels of net NPEs contributions of 400 million euros in 2022.

[glider3834]

27 minutes ago, glider3834 said:

Eurobank operating results for 2021 look solid, they exceeded 2021 guidance.

 

Guiding for EPS of euro 0.14 in 2022 versus share price of euro 0.83 (fwd PE 6x)  & P/TBV is 0.6 x. 

 

Obviously will be impacted by Ukraine situation even though they have little direct loan exposure. Still current valuation looks compelling IMHO.

 

https://www.moneyreview.gr/business-and-finance/69767/eurobank-neo-epicheirisiako-schedio-kai-dianomi-merismatos-se-pososto-20-apo-to-2022/

 

In detail, the financial objectives of the new business plan for the period 2022 - 2024 provide:

 

• Average increase in earnings per share of about 13% per year

• Dividend distribution from the year 2022 at a rate of approximately 20%

• Achieve a sustainable return on tangible equity of 10% per year.

• Creation of at least 100 capital units per year from profitability to finance the development, distribution of dividends and the strengthening of the capital position.

• Reduction of the non-performing loans ratio from 6.8% in 2021 to 4.8% in 2024, a goal reinforced by the low levels of net NPEs contributions of 400 million euros in 2022.

https://www.eurobankholdings.gr/-/media/holding/omilos/enimerosi-ependuton/enimerosi-metoxon-eurobank/oikonomika-apotelesmata-part-01/2022/fy-2021/4q2021-results-pr-en.pdf

[TwoCitiesCapital]

Dividend announcement is a little disappointing, was definitely hoping for something north of 5% and seems like we're gonna get closer to 2-3% pending price action. 

 

That being said though, everything else looks reasonably good and something is better than nothing. 

[petec]

4 hours ago, TwoCitiesCapital said:

Dividend announcement is a little disappointing, was definitely hoping for something north of 5% and seems like we're gonna get closer to 2-3% pending price action. 

 

That being said though, everything else looks reasonably good and something is better than nothing. 

Agreed but then the eps growth forecast was above what I’d assumed possible. Overall I’ll take it. 

[StubbleJumper]

This afternoon, BB is trading at US$5.98, which is below the conversion price on the convertible debentures that FFH holds.  It's looking more and more like a missed opportunity.

 

 

SJ

[petec]

17 hours ago, StubbleJumper said:

This afternoon, BB is trading at US$5.98, which is below the conversion price on the convertible debentures that FFH holds.  It's looking more and more like a missed opportunity.

 

 

SJ

 

Yes, but in a couple of years' time we will be able to take the convert down even lower

[nwoodman]

I enjoyed this exchange on the recent Altius CC (10 March)

 

Carey MacRury

Hey, Brian. Just had a couple of follow ups here. First, just on the Fairfax warrants, obviously, in the money here. Can you just remind us what the trends around those warrants are? Is that something that they would exercise or what the expiry date et cetera?

 

Brian Dalton

They can exercise that anytime quite frankly. The way the original agreement, so that would have been back in ‘17. We -- the strike price on the warrants is 15. I think we did stock was just under that. And yeah, so it's a $15 exercise price. I think the way it was meant to be it would expire, they would expire in April of this year, except in the event that the share price is $24 or higher, in which case they would naturally extend for two years.

 

Carey MacRury

Okay, so you're currently seeing about $24. So --

 

Brian Dalton

Exactly. We shall see. But look--

Carey MacRury

And then I guess --

 

Brian Dalton

But from a perspective of that. I'm just obviously tickled pink that it's worked out so well for Fairfax and remind everyone that the main part of that deal was $100 million preferred investments that Fairfax made, which ultimately resulted in buying our position in Labrador, half of the potash and seed funding and renewables business. So if ever there was a win win deal in the world, this was starting to feel like. And I would also say that it Fairfax were to exercise towards at least every indication I've had in the past that the goal there ultimately would be just to slide into the position of long-term shareholder.

 

Edit:  A reminder of the terms

 

Fairfax has agreed to purchase, on a private placement basis, 5% preferred securities in an aggregate amount of up to $100 million, issuable in tranches of not less than $25 million. Altius has closed today an initial purchase of preferred securities for $25 million, and has sole discretion until December 31, 2017 to require additional purchases by Fairfax for the remaining $75 million. The preferred securities are subordinate secured securities that may be repaid by Altius at any time after April 26, 2022 and at any time after April 26, 2020 if the volume-weighted average trading price of its common shares for any 10 day period after April 26, 2020 is at least $24 per share.

 

Altius has also issued today 6,670,000 common share purchase warrants, exercisable at $15 per share, which will vest proportionately based on the aggregate amount of preferred securities purchased by the Fairfax entities under the private placement. Each vested warrant will be exercisable on or prior to April 26, 2022, but the expiry date will be extended to April 26, 2024 if the closing price of Altius' common shares is less than $24 per share on April 26, 2022. Altius can also elect to require early exercise of the warrants if the volume-weighted average trading price of Altius' common shares for any 10 day period reaches $24 per share at any time after April 26, 2020.

 

So when they convert they will own 6.67/(6.67+41.2)=13.9%

 

Altius holds royalty interests in 12 producing assets throughout the Americas. In Canada these assets include a 4% NSR royalty on Hudbay's 777 copper-zinc mine in Manitoba, 6 potash mines and 1 coal mine located in western Canada, and a royalty on the Voisey's Bay nickel-copper-cobalt mine in Labrador. In Brazil, we have a 3.7% stream interest on Lundin Mining's Chapada Mine.  The Company also receives regular dividend income from its equity ownership in Labrador Iron Ore Royalty Company, which is treated as iron ore royalty revenue, being a pass-through vehicle.  Altius holds ~59% of Altius Renewable Royalties (ARR-TSX) which at December 31, 2021 was valued as approximately $193.5 million (Altius position in shares plus in-the-money warrants).

Edited March 22, 2022 by nwoodman