Viking Posted November 11, 2022 Share Posted November 11, 2022 (edited) Fairfax has certainly hit the ball out of the park with its commodity holdings. They currently total around $1.9 billion = 12.5% of total equity holdings of about $15 billion. The holdings are very diversified and certainly look well positioned to deliver significant value to Fairfax in the coming years (they stand a good chance of hitting Fairfax’s 15% return hurdle rate). - Resolute ($600 million): Selling Resolute for +$600 million (plus $180 million CVA) in a bear market was brilliant. It will be interesting to see where they redeploy the funds when the deal closes in 1H 2023. - Stelco ($384 million): this has also turned into a home run investment. Given all the share buybacks, Fairfax has increased its ownership the past 18 months from 14% to almost 24%. And Kestenbaum is still sitting on some crazy amount of cash ($800 or $900 million?). Another great asset to own. I expect steel to do well as we get to the other side of the economy in another year or so. Like Exco, with Fairfax now owning >20%, this is now an Equity Accounted holding. - Foran Mining ($140 million): Fairfax owns 23% of Foran, which is developing a copper mine in Canada that should begin production in a couple of years right when sales of EV’s should be taking off… and a shortage of copper develops. Most analysts are forecasting much higher prices for copper looking out a couple of years. This investment will be one to watch moving forward as it has the potential to be a another big winner for Fairfax. - Altius Minerals ($106 million): Fairfax owns 14% of this diversified royalty company with exposure to potash, iron, copper etc. Quality company… chug, chug, chug. Fairfax also has a pretty sizeable exposure to energy: - Exco ($195 million carrying value Dec 31). @nwoodman yes, it will be very interesting to see what EXCO resources can deliver as they work off their nat gas hedges. Fairfax’s share of profits for Exco was $44 million in Q3. Great asset to own in the current environment. - Limited partnerships/private equity funds - investment funds managed by third party fund managers:($252.1 - oil and gas extraction- at Dec 31, 2021). @glider3834 mentioned this investment in the past. - Ensign Energy Services ($59 million): Fairfax owns 13% of this oil and gas services company. Certainly looks well positioned. - Big Oil: OXY ($62 million) and CVX ($57 million): Fairfax was a big buyer in Q2. Will be interesting to see if they added more in Q3. Edited November 11, 2022 by Viking Link to comment Share on other sites More sharing options...
UK Posted November 12, 2022 Share Posted November 12, 2022 11 hours ago, Viking said: Fairfax has certainly hit the ball out of the park with its commodity holdings. They currently total around $1.9 billion = 12.5% of total equity holdings of about $15 billion. The holdings are very diversified and certainly look well positioned to deliver significant value to Fairfax in the coming years (they stand a good chance of hitting Fairfax’s 15% return hurdle rate). - Resolute ($600 million): Selling Resolute for +$600 million (plus $180 million CVA) in a bear market was brilliant. It will be interesting to see where they redeploy the funds when the deal closes in 1H 2023. - Stelco ($384 million): this has also turned into a home run investment. Given all the share buybacks, Fairfax has increased its ownership the past 18 months from 14% to almost 24%. And Kestenbaum is still sitting on some crazy amount of cash ($800 or $900 million?). Another great asset to own. I expect steel to do well as we get to the other side of the economy in another year or so. Like Exco, with Fairfax now owning >20%, this is now an Equity Accounted holding. - Foran Mining ($140 million): Fairfax owns 23% of Foran, which is developing a copper mine in Canada that should begin production in a couple of years right when sales of EV’s should be taking off… and a shortage of copper develops. Most analysts are forecasting much higher prices for copper looking out a couple of years. This investment will be one to watch moving forward as it has the potential to be a another big winner for Fairfax. - Altius Minerals ($106 million): Fairfax owns 14% of this diversified royalty company with exposure to potash, iron, copper etc. Quality company… chug, chug, chug. Fairfax also has a pretty sizeable exposure to energy: - Exco ($195 million carrying value Dec 31). @nwoodman yes, it will be very interesting to see what EXCO resources can deliver as they work off their nat gas hedges. Fairfax’s share of profits for Exco was $44 million in Q3. Great asset to own in the current environment. - Limited partnerships/private equity funds - investment funds managed by third party fund managers:($252.1 - oil and gas extraction- at Dec 31, 2021). @glider3834 mentioned this investment in the past. - Ensign Energy Services ($59 million): Fairfax owns 13% of this oil and gas services company. Certainly looks well positioned. - Big Oil: OXY ($62 million) and CVX ($57 million): Fairfax was a big buyer in Q2. Will be interesting to see if they added more in Q3. Viking, thank you for all you work and info on FFH! Link to comment Share on other sites More sharing options...
nwoodman Posted November 14, 2022 Share Posted November 14, 2022 Decent bump in the MU position https://www.dataroma.com/m/holdings.php?m=FFH Link to comment Share on other sites More sharing options...
RetroRanger Posted November 14, 2022 Share Posted November 14, 2022 Yeah Micron becoming very significant. I am still mad about myself because i did not pull the trigger at 48$ ( was sooo close ...) Link to comment Share on other sites More sharing options...
Luke Posted November 14, 2022 Share Posted November 14, 2022 Micron is also 5% of my Portfolio, i like it! Link to comment Share on other sites More sharing options...
MMM20 Posted November 14, 2022 Share Posted November 14, 2022 What’s the deal with the BB bond position? Is that actually new or just the convert showing up? Thx. Link to comment Share on other sites More sharing options...
glider3834 Posted November 14, 2022 Share Posted November 14, 2022 2 hours ago, MMM20 said: What’s the deal with the BB bond position? Is that actually new or just the convert showing up? Thx. they haven't converted them, the strike is $6 , matures Nov-23 https://www.globenewswire.com/news-release/2020/09/02/2087633/0/en/Fairfax-Announces-Acquisition-of-1-75-Convertible-Debentures-of-BlackBerry-Limited-After-Redemption-of-Existing-Convertible-Debentures.html Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 15, 2022 Share Posted November 15, 2022 1 hour ago, glider3834 said: they haven't converted them, the strike is $6 , matures Nov-23 https://www.globenewswire.com/news-release/2020/09/02/2087633/0/en/Fairfax-Announces-Acquisition-of-1-75-Convertible-Debentures-of-BlackBerry-Limited-After-Redemption-of-Existing-Convertible-Debentures.html And could've sold at $10-15 SMDH Link to comment Share on other sites More sharing options...
glider3834 Posted November 16, 2022 Share Posted November 16, 2022 works out as a US$33M or so dividend for Fairfax https://investors.stelco.com/news/news-details/2022/Stelco-Holdings-Inc.-Reports-Third-Quarter-2022-Results-and-Announces-a-3-per-Share-Special-Dividend-and-a-40-Increase-of-its-Regular-Quarterly-Dividend-to-0.42-per-Share/default.aspx Link to comment Share on other sites More sharing options...
Xerxes Posted November 16, 2022 Share Posted November 16, 2022 1 hour ago, glider3834 said: works out as a US$33M or so dividend for Fairfax https://investors.stelco.com/news/news-details/2022/Stelco-Holdings-Inc.-Reports-Third-Quarter-2022-Results-and-Announces-a-3-per-Share-Special-Dividend-and-a-40-Increase-of-its-Regular-Quarterly-Dividend-to-0.42-per-Share/default.aspx Yes ! Yes ! Yes 1 Link to comment Share on other sites More sharing options...
Viking Posted November 16, 2022 Share Posted November 16, 2022 (edited) 2 hours ago, glider3834 said: works out as a US$33M or so dividend for Fairfax https://investors.stelco.com/news/news-details/2022/Stelco-Holdings-Inc.-Reports-Third-Quarter-2022-Results-and-Announces-a-3-per-Share-Special-Dividend-and-a-40-Increase-of-its-Regular-Quarterly-Dividend-to-0.42-per-Share/default.aspx Yes, great news. Kestenbaum first took out every share he could at about C$35. Share count at Stelco at the end of 2020 was 88.7 million. Now it is 55.13 million = decrease of 33.57 million or 38%. With a much lower share count, now Kestenbaum starts with the special dividend. Smart capital allocation. One way to evaluate the quality of Fairfax’s equity portfolio is to look at the performance of the largest individual equity holdings and their management teams over the past couple of years. Kestenbaum/Stelco would get an A+ from me. ————— Looks like the special dividend is about what Stelco earned in Q3. Not too shabby. And perhaps we see more. - Adjusted Net Income* of $163 million and Adjusted Net Income* per share of $2.40, down 74% from Q3 2021 and 54% from Q2 2022 ————— special dividend 55.13 million share outstanding x C$3 = C$166 million total cost. regular quarterly dividend 55.13 million share outstanding x C$0.42 = C$23 million/quarter total cost. ————— Fairfax owns 13 million shares of Stelco 13 x $3.42 = C44 million = US$33.5 million. I think Kestenbaum is the second largest shareholder at Stelco. Cha ching! Edited November 16, 2022 by Viking Link to comment Share on other sites More sharing options...
Xerxes Posted November 21, 2022 Share Posted November 21, 2022 Link to comment Share on other sites More sharing options...
petec Posted November 25, 2022 Author Share Posted November 25, 2022 On 11/16/2022 at 2:03 AM, Viking said: I think Kestenbaum is the second largest shareholder at Stelco. Cha ching! Yes he is. My guess is they take this private together at some point a la Atlas. Link to comment Share on other sites More sharing options...
glider3834 Posted December 2, 2022 Share Posted December 2, 2022 https://www.ekathimerini.com/economy/1199226/eurobank-to-buy-additional-13-4-stake-in-cypriot-hellenic-bank/ Link to comment Share on other sites More sharing options...
Viking Posted December 2, 2022 Share Posted December 2, 2022 2 hours ago, glider3834 said: https://www.ekathimerini.com/economy/1199226/eurobank-to-buy-additional-13-4-stake-in-cypriot-hellenic-bank/ This purchase builds on Eurobank’s initial investment in Hellenic Bank last year and now makes Eurobank the largest shareholder of the second largest bank in Cypress. Eurobank also has its own operations in Cypress. It is clear Eurobank has aspirations to grow in size. One strategy it is executing is to slowly build out its presence into adjacent countries. Chug, chug, chug. My guess is Eurobanks’s strong financial position is going to allow them ample opportunity to continue to expand over time. In a weak environment, the strong get stronger. The stellar work the past 5 years of the management team at Eurobank is beginning to really shine through. Here is another article discussing the acquisition in a little more detail: - https://cyprus-mail.com/2022/12/01/eurobank-to-become-hellenic-bank-majority-shareholder/ Eurobank on Thursday said that it has increased its stake in Hellenic Bank to 26 per cent, having now made an agreement for the acquisition of a 13.4 per cent share that currently belongs to video game company Wargaming, with the agreement pending regulatory approval. Following the acquisition, Eurobank has now become Hellenic Bank’s majority shareholder, further expanding the bank’s involvement in the Cypriot banking sector. Eurobank also operates its own wholly-owned subsidiary on the island. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted December 2, 2022 Share Posted December 2, 2022 9 hours ago, Viking said: This purchase builds on Eurobank’s initial investment in Hellenic Bank last year and now makes Eurobank the largest shareholder of the second largest bank in Cypress. Eurobank also has its own operations in Cypress. It is clear Eurobank has aspirations to grow in size. One strategy it is executing is to slowly build out its presence into adjacent countries. Chug, chug, chug. My guess is Eurobanks’s strong financial position is going to allow them ample opportunity to continue to expand over time. In a weak environment, the strong get stronger. The stellar work the past 5 years of the management team at Eurobank is beginning to really shine through. Here is another article discussing the acquisition in a little more detail: - https://cyprus-mail.com/2022/12/01/eurobank-to-become-hellenic-bank-majority-shareholder/ Eurobank on Thursday said that it has increased its stake in Hellenic Bank to 26 per cent, having now made an agreement for the acquisition of a 13.4 per cent share that currently belongs to video game company Wargaming, with the agreement pending regulatory approval. Following the acquisition, Eurobank has now become Hellenic Bank’s majority shareholder, further expanding the bank’s involvement in the Cypriot banking sector. Eurobank also operates its own wholly-owned subsidiary on the island. Is it typical to make such large investments in competitors in European banking? Or is this signalling a full take out and consolidation with their Cypriot subsidiary at some point? Link to comment Share on other sites More sharing options...
petec Posted December 4, 2022 Author Share Posted December 4, 2022 On 12/2/2022 at 3:33 PM, TwoCitiesCapital said: Is it typical to make such large investments in competitors in European banking? Or is this signalling a full take out and consolidation with their Cypriot subsidiary at some point? The latter, I suspect. Link to comment Share on other sites More sharing options...
petec Posted December 4, 2022 Author Share Posted December 4, 2022 On 12/2/2022 at 5:45 AM, Viking said: Eurobank also has its own operations in Cypress. Cyprus. Cypress is a tree Link to comment Share on other sites More sharing options...
Viking Posted December 12, 2022 Share Posted December 12, 2022 (edited) As of today, it looks to me like Fairfax is set to report Net Gains on Investments of around $2 billion in Q4 = $450 (equities) + $1,300 (pet insurance) + $250 (bonds). Over the first 9 months of 2022, Fairfax had booked a $2.3 billion loss in the 'Net gains (losses) on investments' line item. If Fairfax comes in around $2 billion in Q4 they would reverse most of the YTD loss. That would be amazing, given we have just had bear markets in both bond and stock markets. Importantly, the investment portfolio at Fairfax looks well positioned and should deliver better than average returns moving forward. ---------- As of Dec 9, Fairfax is sitting on about $1.14 billion in gains on its equity holdings (that I track... I attached my Excel spreadsheet below). Here is the split by 'bucket': 1.) mark to market = +$450 million (incudes TRS, warrants etc) 2.) associates = +$500 million 3.) consolidated = +$190 million Big movers? - Eurobank = +$299 - FFH TRS = +$226 - Fairfax India = +$181 - Atlas = +$180 - Quess = - $109 - Stelco = +$105 Fairfax Equity Holdings Dec 9 2022.xlsx Edited December 12, 2022 by Viking Link to comment Share on other sites More sharing options...
steph Posted December 12, 2022 Share Posted December 12, 2022 Dear Viking, I just would like to thank you for all the work you do and for sharing it with us. Very much appreciated! Link to comment Share on other sites More sharing options...
StubbleJumper Posted December 12, 2022 Share Posted December 12, 2022 12 hours ago, Viking said: As of today, it looks to me like Fairfax is set to report Net Gains on Investments of around $2 billion in Q4 = $450 (equities) + $1,300 (pet insurance) + $250 (bonds). Over the first 9 months of 2022, Fairfax had booked a $2.3 billion loss in the 'Net gains (losses) on investments' line item. If Fairfax comes in around $2 billion in Q4 they would reverse most of the YTD loss. What is your methodology for estimating the M2M bond gains of $250m? Treasury rates for 5-yr and 10-yr treasuries are definitely lower since Sept 30, but the shorter term rates such as the 1-yr and 2-yr have edged up a shade. I haven't attempted any arithmetic on the fixed income port, but my mental model was that from Q3 to Q4 it would be roughly a wash. My logic for that was the basic notion that dV/dy would likely be slightly negative because shorter treasury rates have edged higher, but that would likely be more or less offset by dV/dt being slightly positive. In any case, the M2M change for the fixed income port is pretty irrelevant when the bonds are intended to be held to maturity, but as you noted, it could make a bit of a difference for the EPS number that gets reported, and sometimes the market reacts favourably to a higher headline number (even if the earnings quality is dubious). SJ Link to comment Share on other sites More sharing options...
modiva Posted December 12, 2022 Share Posted December 12, 2022 10 hours ago, steph said: Dear Viking, I just would like to thank you for all the work you do and for sharing it with us. Very much appreciated! Thank you Viking! I benefit from your generous sharing of your work. Link to comment Share on other sites More sharing options...
Xerxes Posted December 12, 2022 Share Posted December 12, 2022 5 hours ago, StubbleJumper said: My logic for that was the basic notion that dV/dy would likely be slightly negative because shorter treasury rates have edged higher, but that would likely be more or less offset by dV/dt being slightly positive. Ahhhh not Calculus 2. I vowed decades ago before God to not re-open the Calculus books. Link to comment Share on other sites More sharing options...
Viking Posted December 12, 2022 Share Posted December 12, 2022 4 hours ago, StubbleJumper said: What is your methodology for estimating the M2M bond gains of $250m? Treasury rates for 5-yr and 10-yr treasuries are definitely lower since Sept 30, but the shorter term rates such as the 1-yr and 2-yr have edged up a shade. I haven't attempted any arithmetic on the fixed income port, but my mental model was that from Q3 to Q4 it would be roughly a wash. My logic for that was the basic notion that dV/dy would likely be slightly negative because shorter treasury rates have edged higher, but that would likely be more or less offset by dV/dt being slightly positive. In any case, the M2M change for the fixed income port is pretty irrelevant when the bonds are intended to be held to maturity, but as you noted, it could make a bit of a difference for the EPS number that gets reported, and sometimes the market reacts favourably to a higher headline number (even if the earnings quality is dubious). SJ @StubbleJumper great question. When Fairfax reported Q3 I was surprised the net loss from bonds was only $240 million (after hedge). It was $150 million lower than Q2 - even though the absolute interest rate moves in Q3 were larger than Q2 across the curve. So I wonder if we are not now seeing - as bonds held shrink in duration and get closer to maturity - a small unwind each quarter in the unrealized loss bucket. Which is what Fairfax told us would happen (the unrealized $1 billion loss in bonds would reverse as they are held to maturity). After doing more of a deep dive this morning I think my $250 million number for bond gains in Q4 is too high. I was overestimating the gains (further out on the curve) versus the losses (on the shorter end). My new guess is something closer to zero. Fairfax will see gains in Q4 from their longer term bond holdings. In Q3 they were very aggressive adding $4.1 billion with a 3-5 year duration. Their total bond exposure of 3 years and longer went from $2.5 billion to $6.9 billion = + $4.4 billion. My guess is Fairfax likely continued to add bonds of 3 year or more duration in Oct and Nov. Yields on longer term treasuries peaked around Nov 7. If Fairfax continued to be aggressive adding to duration in Q4 then the gains from falling bond yields will be even larger in Q4. Offsetting the gains on longer term bonds will be unrealized losses on shorter duration bonds as short term rates continue to march higher. The bottom line, Fairfax's bond portfolio is in very good shape and they are positioned very well for the current environment (lots of unknowns). My guess is big unrealized bond losses are a thing of the past. And now Fairfax shareholders will enjoy much higher interest and dividend income. So it was 9 months of pain (and $1.1 billion net loss on their bond portfolio). Moving forward, Fairfax shareholders will now reap the gain of higher interest rates. Link to comment Share on other sites More sharing options...
StubbleJumper Posted December 12, 2022 Share Posted December 12, 2022 @Viking Now you've done it. I was happily sitting on my ass thinking about making some supper before Monday Night Football and now my curiosity has gotten the better of me. So, I did a half-assed estimate of the change in fixed income based on a rough guess about the duration of the various fixed income maturity groups and the prevailing treasury rates for those groups: Assumed Duration Fair Value Sept 30 Interest Rates as at: Delta Y Delta V 12/09/22 09/30/22 Due in 1 year or less 1 7,571.80 0.0472 0.0405 0.0067 -50.73 Due after 1 year through 3 years 2 13,749.10 0.0433 0.0422 0.0011 -30.25 Due 3 though 5 years 5 5,335.30 0.0375 0.0406 -0.0031 82.70 Due 5 through 10 years 7 610.70 0.0369 0.0397 -0.0028 11.97 Due after 10 years 10 613.90 0.0357 0.0383 -0.0026 15.96 Total portfolio change 29.65 So, that's a shitty estimate of the change in the fixed income portfolio value based on a half-assed guess about the duration, and under the assumption of an instantaneous interest rate change (I've not considered Delta-t). The duration estimates for 3 through 5 years and for the after 10 years group are extra shitty, but that's life. The result of that shitty calculation would lead me to call it a M2M gain of ~$30m plus a bit of delta-t? Half-baked analysis like this is why they promoted me into management where I could do less harm.... SJ Link to comment Share on other sites More sharing options...
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