Fairfax stock positions

[Maverick47]

On 1/11/2024 at 5:44 AM, nwoodman said:

I’ll take the $84 bn market cap right now if it’s in the offing , kind of thought that might be a story for 2030+.  However very pleasing to see that they have some other assets in mind other than, perhaps, a particular bank

The way I interpreted the $84B reference was that the journalist was referring to the assets of the company, which is just over that amount on the 2023 Q3 balance sheet.

[nwoodman]

4 hours ago, Maverick47 said:

The way I interpreted the $84B reference was that the journalist was referring to the assets of the company, which is just over that amount on the 2023 Q3 balance sheet.

Spot on.  Thanks

[petec]

On 1/15/2024 at 4:50 AM, Viking said:

It has been super interesting to watch the management team at Eurobank for the past 3 years - a steady stream of good decisions.

 

I think they've been making great decisions for a decade - it's just taken until now for us to see it.

 

Question for me is whether rising interest rates has driven an unsustainable burst of earnings (if their assets reprice faster than their liabilities - I have not checked). But even if this is true they are in a much better place than a few years back, and the stock is not expensive.

[dartmonkey]

For fun, here are some rough numbers for 2024:

• Poseidon = $200 to $250
• Eurobank = $400 to $450
• FFH-TRS = $400 to $500
• Fairfax India = $125
• Recipe = $75

Just a heads up that the Eurobank position if up over $200m year to date, i.e. over the last 3 weeks, and the FFH-TRS are up $118m. Good start to this year's scheduled $1.2b in equity gains. Come on, India, do your part now.

[Viking]

On 1/16/2024 at 8:00 AM, petec said:

 

I think they've been making great decisions for a decade - it's just taken until now for us to see it.

 

Question for me is whether rising interest rates has driven an unsustainable burst of earnings (if their assets reprice faster than their liabilities - I have not checked). But even if this is true they are in a much better place than a few years back, and the stock is not expensive.

@petec “I think they've been making great decisions for a decade” 

1.) On the insurance front, i agree.

2.) On the investments - fixed income front, i am neutral (looking at the decade as a whole).

3.) On the investments - equities front, the period 2014-2017 was a stinker (Eurobank 1st purchase, Fairfax Africa, APR, EXCO bankruptcy, AGT take private, Farmers Edge, Boat Rocker etc). Notwithstanding the recent stumble at Poseidon/Atlas, decisions made 2018 to present has been great (in aggregate).

4.) On the derivates front, the equity hedges/shorts were a catastrophe from 2010-2020 mostly (2010-2016). The FFH-TRS has been better than great. 
 

The question i have is did all the equity hedge/short losses and the losses from the poor equity purchases from 2014-2017 significantly warp the book value we see today? I wonder if it is significantly understated. 
 

The main reason i think it might be significantly understated is the fact the insurance business has increased in size by 350% from 2014-2024E. Book value has increased much less over this same timeframe.

 

That is probably why i prefer to use a bottom-up earnings estimate as my primary valuation tool for Fairfax as opposed to book value. I trust the informational value of one much more than the other.

Edited January 23 by Viking

[Viking]

1 hour ago, dartmonkey said:

For fun, here are some rough numbers for 2024:

• Poseidon = $200 to $250
• Eurobank = $400 to $450
• FFH-TRS = $400 to $500
• Fairfax India = $125
• Recipe = $75

Just a heads up that the Eurobank position if up over $200m year to date, i.e. over the last 3 weeks, and the FFH-TRS are up $118m. Good start to this year's scheduled $1.2b in equity gains. Come on, India, do your part now.

@dartmonkey yes, great start to the year for two of Fairfax’s largest equity holdings. And if the big boys are performing well, that usually means good things for the performance of the equity group as a whole. 

Edited January 22 by Viking

[gfp]

Q4 2023 was decent for Fairfax's 3.9m shares of Micron as well

[petec]

10 hours ago, Viking said:

@petec “I think they've been making great decisions for a decade” 

1.) On the insurance front, i agree.

2.) On the investments - fixed income front, i am neutral (looking at the decade as a whole).

3.) On the investments - equities front, the period 2014-2017 was a stinker (Eurobank 1st purchase, Fairfax Africa, APR, EXCO bankruptcy, AGT take private, Farmers Edge, Boat Rocker etc). Notwithstanding the recent stumble at Poseidon/Atlas, decisions made 2018 to present has been great (in aggregate).

4.) On the derivates front, the equity hedges/shorts were a catastrophe from 2010-2020 mostly (2010-2016). The FFH-TRS has been better than great. 
 

The question i have is did all the equity hedge/short losses and the losses from the poor equity purchases from 2014-2017 significantly warp the book value we see today? I wonder if it is significantly understated. 
 

The main reason i think it might be significantly understated is the fact the insurance business has increased in size by 350% from 2014-2024E. Book value has increased much less over this same timeframe.

 

That is probably why i prefer to use a bottom-up earnings estimate as my primary valuation tool for Fairfax as opposed to book value. I trust the informational value of one much more than the other.

 

I was referring to Eurobank making great decisions for a decade!

 

What's the stumble at Poseidon? Just interest rates rising, or something more. 

 

This was my big worry when I was a shareholder of Atlas - floating rates vs fixed revenues. I decided I preferred Brookfield's inflation-linked revenue asset classes.

[nwoodman]

3 hours ago, petec said:

 

I was referring to Eurobank making great decisions for a decade!

 

What's the stumble at Poseidon? Just interest rates rising, or something more. 

 

This was my big worry when I was a shareholder of Atlas - floating rates vs fixed revenues. I decided I preferred Brookfield's inflation-linked revenue asset classes.

Pretty much.  They hedged IR but that has limits.  Jury is out but this probably not going to be Prem’s Mid American moment.  The beautiful thing is that they are continuing to pile up capital allocation options.  This has been the epiphany for me with this company.  Deal flow is critical, and  a constant reminder of what will move the needle for a circa $25bn company vs $750 bn company.  You  can water them or let them wilt or just stick around for the cycle to turn.  Poseidon, will no doubt be one of those 2030 stories, which suits me just fine

Edited January 23 by nwoodman

[Haryana]

19 hours ago, dartmonkey said:

For fun, here are some rough numbers for 2024:

• Poseidon = $200 to $250
• Eurobank = $400 to $450
• FFH-TRS = $400 to $500
• Fairfax India = $125
• Recipe = $75

Just a heads up that the Eurobank position if up over $200m year to date, i.e. over the last 3 weeks, and the FFH-TRS are up $118m. Good start to this year's scheduled $1.2b in equity gains. Come on, India, do your part now.

 

India did its part by granting life insurance business licence to Digit just in June last year. Not that easy to get that in India.

https://bfsi.economictimes.indiatimes.com/news/insurance/irdai-licences-go-digit-life-insurance-to-commence-business/100989865

 

[Viking]

8 hours ago, petec said:

 

I was referring to Eurobank making great decisions for a decade!

 

What's the stumble at Poseidon? Just interest rates rising, or something more. 

 

This was my big worry when I was a shareholder of Atlas - floating rates vs fixed revenues. I decided I preferred Brookfield's inflation-linked revenue asset classes.

@petec sorry, i missed that your comment was specific to Eurobank.

 

From my perspective, the ‘stumble’ at Poseidon has been their inability to come close to hitting their financial targets set out in the recent past. Interest expense appears to be the culprit. The CFO resigned in July 2023.
 

2024 will be a big year for Atlas, given all the new-builds that are getting completed. The issues in the Red Sea - if they persist - might help at the margin (driving shipping rates higher). The fact interest rates have come down significantly over the past 3 months might also help a little.

 

I am not concerned about Poseidon/Atlas. I view it more as a missed opportunity (in the near term). I do expect the ship to right itself over time. Going private was the right move for Atlas.
 

 

[petec]

20 hours ago, nwoodman said:

Pretty much.  They hedged IR but that has limits.  Jury is out but this probably not going to be Prem’s Mid American moment.  The beautiful thing is that they are continuing to pile up capital allocation options.  This has been the epiphany for me with this company.  Deal flow is critical, and  a constant reminder of what will move the needle for a circa $25bn company vs $750 bn company.  You  can water them or let them wilt or just stick around for the cycle to turn.  Poseidon, will no doubt be one of those 2030 stories, which suits me just fine

 

Yes - Poseidon's earnings are always going to be cyclical, so it's hard to judge progress at any given point in time. Let's see in a few years.

[petec]

13 hours ago, Viking said:

The CFO resigned in July 2023.

 

I hadn't noticed - good spot. I would not read much into it though.

 

13 hours ago, Viking said:

I am not concerned about Poseidon/Atlas.

 

Agreed. It is not a great business, but with rates (maybe) more likely to drop than rise from here, it should be able to show its earning power. And it is well run.

[Xerxes]

On 1/23/2024 at 3:47 AM, petec said:

This was my big worry when I was a shareholder of Atlas - floating rates vs fixed revenues. I decided I preferred Brookfield's inflation-linked revenue asset classes.

Funny how for years Sokol and Bing hammered the previous Seaspan’s management for putting the company in such a position that end up of it not being able to take advantage of market dislocation. 
 

Yet for whatever reason, fixing their debt exposure to interest rate movement didn’t cross their mind. Notwithstanding the fact that their biggest shareholder was making a big bet exactly on that happening. 

[petec]

12 hours ago, Xerxes said:

Funny how for years Sokol and Bing hammered the previous Seaspan’s management for putting the company in such a position that end up of it not being able to take advantage of market dislocation. 
 

Yet for whatever reason, fixing their debt exposure to interest rate movement didn’t cross their mind. Notwithstanding the fact that their biggest shareholder was making a big bet exactly on that happening. 

 

They took huge advantage of the market dislocation - what's actually been harder is the market normalisation! But yes, I get what you are saying - I don't know why they didn't fix more of their financing at record low rates. Either they could but didn't which seems unlikely me because they're smart people; or they couldn't, which says something about the quality of the business in the eyes of lenders.

 

I wonder if the answer is they could not finance the *construction* on long term low rate debt. Maybe once the assets are built, financing is easier because the risk is lower. That's certainly the case in some asset classes.

[nwoodman]

2 hours ago, petec said:

 

They took huge advantage of the market dislocation - what's actually been harder is the market normalisation! But yes, I get what you are saying - I don't know why they didn't fix more of their financing at record low rates. Either they could but didn't which seems unlikely me because they're smart people; or they couldn't, which says something about the quality of the business in the eyes of lenders.

 

I wonder if the answer is they could not finance the *construction* on long term low rate debt. Maybe once the assets are built, financing is easier because the risk is lower. That's certainly the case in some asset classes.

It’s interesting to ponder, I agree they would have locked if they could. All involved have played the interest rate cycle better than most.

 

 @Viking is 100% correct (as usual) that the take private was the right move.  I bemoaned it at the time but they would likely be a  single digit stock price by now.  They gave us all the opportunity to invest in the parent which has worked out well.  
 

This is not to say they aren’t building long term value.  There is an embedded non linearity as credit ratings of all involved improve.    

[Viking]

Fairfax's total return swap position (giving it exposure to 1.96mn $FFH.TO shares) is up $250 million so far in 2024. And up $1.3 billion (before carrying costs) in a little over 3 years. Outstanding capital allocation. Opportunistic. Creative. Concentrated position. A needle mover for Fairfax and its shareholders. 

 

“We think this will be a great investment for Fairfax, perhaps our best yet!” This is what Prem said in his letter in the 2020 annual report when first describing this investment. Clearly, Fairfax was thinking big when they made this investment. My guess is the return from this investment so far has exceeded their lofty expectations.

 

When you combine this decision with the buyback of 2 million Fairfax shares in late 2021 at US$500/share... Wow!

 

 

Edited January 31 by Viking

[SafetyinNumbers]

23 minutes ago, Viking said:

Fairfax's total return swap position (giving it exposure to 1.96mn $FFH.TO shares) is up $250 million so far in 2024. And up $1.3 billion (before carrying costs) in a little over 3 years. Outstanding capital allocation. Opportunistic. Creative. Concentrated position. A needle mover for Fairfax and its shareholders. 

 

“We think this will be a great investment for Fairfax, perhaps our best yet!” This is what Prem said in his letter in the 2020 annual report when first describing this investment. Clearly, Fairfax was thinking big when they made this investment. My guess is the return from this investment so far has exceeded their lofty expectations.

 

When you combine this decision with the buyback of 2 million Fairfax shares in late 2021 at US$500/share... Wow!

 

 

FFH has for the most part traded their stock brilliantly including issue equity well above book value on many occasions. It’s a part of BVPS growth that gets ignored for the most part since with the exception of the TRS, it doesn’t flow through the PnL.

[Xerxes]

It would be interesting to know the history behind the TRS. What went through their minds as they contemplated the move in 2020-21. 
 

It is not something they came up just at the moment. It makes you wonder if it is something they wished they put in place back 2009-10. 

[SafetyinNumbers]

2 hours ago, Xerxes said:

It would be interesting to know the history behind the TRS. What went through their minds as they contemplated the move in 2020-21. 
 

It is not something they came up just at the moment. It makes you wonder if it is something they wished they put in place back 2009-10. 

Why 2009-10? The stock wasn’t particularly cheap then from what I can tell.

[Xerxes]

^^^ that they knew there billions to be booked when the short was going to be covered, and I don’t think that was in stock (I didn’t know FFH back then but that is my historical understanding)

 

reverse of what Goldman did. Made fees by selling the long-bet products, then went short with its own capital. 

[Hoodlum]

I doubt this will be implemented this year, but it is an interesting development.

 

https://www.business-standard.com/finance/insurance/irdai-proposes-changes-in-listing-requirements-of-insurance-companies-124020201707_1.html

 

Quote

The Insurance Regulatory and Development Authority of India (IRDAI) on Friday proposed removing the need for Indian insurance companies to seek prior approval from the regulator before listing on stock exchanges, subject to compliance with specified conditions.

The suggestion is made based on recommendations from the Regulation Review Committee (RRC) that consolidated existing regulation into IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024. The recommendations are expected to help enhance ease of doing business while ensuring protection of customer interests.

 

[dartmonkey]

https://www.eurobankholdings.gr/en/grafeio-tupou/etairiki-anakoinosi-05-02-24

 

Shares up nicely to $1.80, with one agency's approval of their increased stake of Hellenic Bank (from 29.2% to 55.3%). This may now be Fairfax's biggest equity holding, up from $2.1b at year end last month to over $2.4b now. 

[Viking]

2 hours ago, dartmonkey said:

https://www.eurobankholdings.gr/en/grafeio-tupou/etairiki-anakoinosi-05-02-24

 

Shares up nicely to $1.80, with one agency's approval of their increased stake of Hellenic Bank (from 29.2% to 55.3%). This may now be Fairfax's biggest equity holding, up from $2.1b at year end last month to over $2.4b now. 

Great news. Below is an update of the math. Eurobank headlines the dramatic improvement we have seen in the quality of Fairfax’s total equity portfolio over the past 5 years. This bodes well for future earnings at Fairfax from their equity holdings:

- higher dividends

- higher share of profit of associates

- higher investment gains

For associate/equity accounted holdings like Eurobank, this means excess of fair value to carrying value will continue to widen (pretty dramatically in Eurobank’s case). Which just means book value at Fairfax will become more understated.

 

I think Eurobank is hoping to announce the re-instatement of their dividend when they report Q4. If they do, i think Fairfax’s share could be meaningful. Perhaps as much as $80 to $100 million per year.

 

Edited February 5 by Viking

[Viking]

Murad Al-Katib, President and Chief Executive Officer - AGT Food and Ingredients. 

 

On September 19, 2023, Murad gave a 75 minute talk to his Alma Mater, Edwards School of Business in Saskatoon, Saskatchewan. Great history and overview of the company. Pretty amazing what he has been able to accomplish.  

 

Click the link to watch the YouTube video: 

https://youtu.be/DzE9ypecdI8?si=cxvsU3EeXoXGzELc

 

AGT 'reported sales' in 2022 = C$2.8 billion (the slide below is from the video)

In Fairfax’s 2022AR, Prem said AGT had EBITDA of C$150 million

 

Do board members have any thoughts on how this company should be valued? Fairfax owns around 60%. It seems to be in a perennial growth phase where everything is getting reinvested in the business.

 

Edited February 11 by Viking