Fairfax stock positions

[gfp]

7 minutes ago, ValueMaven said:

Whats the best way outside of the Ks & Qs to look at Fairfax's equity portfolio?

 

For the US holdings this is the shortcut I use for the 13F holdings.

https://www.dataroma.com/m/holdings.php?m=FFH

 

For the Canadian, International and OTC type holdings I use the company reports and Viking puts out some nice summaries.

[nwoodman]

https://www.fairfax.ca/press-releases/fairfax-announces-acquisition-of-additional-orla-shares-3/
 

“Orla and brings Fairfax’s total holdings, through its insurance subsidiaries, of such securities to 55,405,229 Common Shares (or approximately 17.58% of all Common Shares).”

 

$3.375 at the time of writing, makes this a $186m position.  A bit more than a passing phase.  
 

Between Orla and Foran it’s close to $400mn.  Throw in the Altius warrants and it is close to $500 mn.  Then take the Exco and Occidental positions that’s another $900m or so.  Taken as a basket, you could almost argue that commodities is their third big equity idea after Eurobank and Poseidon/Atlas.  
 

No idea about Exco, but the others seem to be long life assets and not just cigar butts.

[ValueMaven]

MU has been on FIRE recently 

[nwoodman]

MS with a minor upgrade to Eurobank ahead of earnings.  Revised PT €2.35 from €2.33

 

“We update our model ahead of 4Q23 results. We lower opex marginally to incorporate one offs related to floods in 3Q23 and restructuring cost. Our FY23-25 EPS is up by ~1.5% and our PT increases by ~1% to EUR2.35. We remain Overweight. 

• A strong balance sheet means that Eurobank is one of the the most resilient Greek banks in our coverage. We expect performing loans to grow at a ~6% CAGR (pro-forma for Hellenic bank acquisition) in 2023-25.
• We forecast NIMs to decrease by 2bps in 2024 followed by a 13bps contraction in 2025 (pro-forma for Hellenic bank acquisition), as we expect the rate-cutting cycle to begin in 2Q24, thus driving asset yields lower.
• 3Q23 NPE ratio stood at 5.0%; we forecast it to reach 3.6% by 2025.
• We see the Hellenic Bank acquisition as accretive for the bank.”

 

So roughly a $2.5 bn equity position for Fairfax at an earnings yield of 15% for the foreseeable future.  Every “little” bit helps.

EUROBANK_20240227_1450.PDF

[petec]

On 2/26/2024 at 7:47 PM, nwoodman said:

Taken as a basket, you could almost argue that commodities is their third big equity idea after Eurobank and Poseidon/Atlas.

 

Yes - I've been thinking this for a while. 

 

Don't they have equity in Altius as well as warrants? 

[nwoodman]

58 minutes ago, petec said:

 

Yes - I've been thinking this for a while. 

 

Don't they have equity in Altius as well as warrants? 

Spot on!

 

“The Warrants and the Preferred Securities were originally issued on April 26, 2017. Prior to the Transaction,
Fairfax directly or indirectly owned or controlled an aggregate of no Common Shares, 6,670,000 Warrants
and $100 million Preferred Securities, which represented 13.94% of the issued and outstanding Common
Shares as of April 14, 2022, on a partially diluted basis. Following the completion of the Transaction, Fairfax
will directly or indirectly own or control 6,670,000 Common Shares, which represents 13.94% of the issued
and outstanding Common Shares as of April 14, 2022, on a non-diluted basis, and Altius will have no
outstanding Warrants, Preferred Securities or resulting interest distribution obligations.”

 

https://www.altiusminerals.com/_resources/press-releases/2022-04-14-fairfax-exercise-final-1649938923.pdf?v=0.327

 

 

[wondering]

Does anyone have any knowledge how the float is invested in the smaller markets where Fairfax operates in? For example, what type of investments do they have in South America or Eastern Europe?  Or is this so small, its not worth bothering about?  

 

I asked Peter Furlan (one of Hamblin Watsa guys) years ago at an AGM about the international investments.  He mentioned that they don't play on FX, meaning that the float from, say Colombia is invested in Colombian stocks and bonds.  At least, that was my understanding.

 

Can anyone shed some light on this?  Am I thinking about this the right way?

 

My guess is that it is a small percentage of stocks, and mostly government bonds.  

 

PS - how the hell do you invest the float in Argentina?!

[Hoodlum]

Additional confirmation of Go Digit IPO approval.

 

https://www.reuters.com/world/india/india-regulator-clears-fairfax-backed-digits-ipo-after-delay-letter-shows-2024-03-01/

 

Quote

MUMBAI, March 1 (Reuters) - India's markets regulator has given Digit Insurance the go-ahead to launch an IPO after multiple compliance issues delayed approval for the deal originally planned in 2022, according to a letter seen by Reuters.

 

Digit, last valued at $3.5 billion, filed for an initial public offering in August 2022 but its plans were halted twice by the Securities and Exchange Board of India, which raised concerns over the legality of some share issuances, Reuters reported.

 

After addressing the issues, Digit, which operates in the general insurance sector and counts Canadian billionaire Prem Watsa's Fairfax Group and A91 Partners among its backers, refiled its IPO papers with SEBI last March, which the regulator has now approved.

 

"The proposed issue can open for subscription within a period of 12 months," said the letter sent on Friday to Digit and its IPO advisers, seen by Reuters.

 

The letter doesn't specify earlier compliance issues or SEBI's position, but two sources familiar with it said the go-ahead means the regulator is satisfied with the IPO application.

 

Digit declined to comment while SEBI did not immediately respond to a request for comment.

 

Digit now plans to market its IPO to prospective investors over the next month and targets a listing by May, said a person with direct knowledge of the matter.

 

It plans to raise 12.5 billion rupees ($151 million) through its listing in addition to an offer for the sale of 109.4 million shares, its prospectus shows.

 

Digit's listing plans coincide with a record boom in India's stock markets and public listings, and bankers expect 2024 to be one of the country's biggest ever years for IPOs, Reuters earlier reported.

 

[villainx]

That's the last hurdle?  

[ourkid8]

This is wonderful news.  Does anyone know where we are on the regulatory approval to increase our ownership to 74%?  

[This2ShallPass]

3 hours ago, Hoodlum said:

Digit's listing plans coincide with a record boom in India's stock markets and public listings, and bankers expect 2024 to be one of the country's biggest ever years for IPOs,

Things work out! Doing an IPO in 2022 would have been terrible. 

[StubbleJumper]

4 minutes ago, This2ShallPass said:

Things work out! Doing an IPO in 2022 would have been terrible. 

 

 

This might present an interesting opportunity.  A guy could go (or remain!) extremely overweighted in FFH until the end of May or early-June with the hope of catching lightning in a bottle from this IPO.  And then whether or not the IPO triggers a price response in FFH's share price, a guy could dump his surplus shares in mid-to-late-June before the hurricane season begins in earnest.  With FFH trading at 1.1x BV, that strikes me as a "heads I win, tails I probably don't lose" type of proposition.

 

In my case, it would be a "remain extremely overweighted" because I seized the Muddy Waters opportunity three weeks ago.  Basic risk management dictates that I should probably give my position a significant haircut, but perhaps it's worth letting it run for another 4 months.

 

Wouldn't be the first time that I did something dumb in pursuit of money that I didn't really need!

 

 

SJ

[Hoodlum]

19 minutes ago, StubbleJumper said:

 

 

This might present an interesting opportunity.  A guy could go (or remain!) extremely overweighted in FFH until the end of May or early-June with the hope of catching lightning in a bottle from this IPO.  And then whether or not the IPO triggers a price response in FFH's share price, a guy could dump his surplus shares in mid-to-late-June before the hurricane season begins in earnest.  With FFH trading at 1.1x BV, that strikes me as a "heads I win, tails I probably don't lose" type of proposition.

 

In my case, it would be a "remain extremely overweighted" because I seized the Muddy Waters opportunity three weeks ago.  Basic risk management dictates that I should probably give my position a significant haircut, but perhaps it's worth letting it run for another 4 months.

 

Wouldn't be the first time that I did something dumb in pursuit of money that I didn't really need!

 

 

SJ

MW is currently well under water with their current short position.  It would not surprise me if they initiated another Smash and Grab next week before the Annual Report is released, in order to limit the losses on their current short position.  I don't think they can wait too long with the share price continuing to rise.

[StubbleJumper]

17 minutes ago, Hoodlum said:

MW is currently well under water with their current short position.  It would not surprise me if they initiated another Smash and Grab next week before the Annual Report is released, in order to limit the losses on their current short position.  I don't think they can wait too long with the share price continuing to rise.

 

I kinda figure that MW is done.  Their first attempt was so pathetic that I can't imagine that there would be any uptake from the investment industry in a second attempt.

 

SJ

[Viking]

What was the change in the value of Fairfax’s equity portfolio to Feb 29, 2024?

 

Fairfax’s equity portfolio (that I track) had a total value of about $18 billion at February 29, 2024. This is an increase of about $496 million (pre-tax) or 2.8% from December 31, 2023. The increase two months into Q1 works out to about $21.45/share.

 

 

I include holdings like the FFH-TRS position in the mark to market bucket and at its notional value. I also include debentures and warrants in this bucket.

 

My tracker portfolio is not an exact match to Fairfax’s actual holdings. My summary contains no information from Fairfax’s 2023 annual report, as it has not been released yet.

 

As a result, my tracker portfolio is useful only as a tool to understand the likely directional movement in Fairfax’s equity portfolio (and not the precise change).

 

Split of total holdings by accounting treatment

 

About 49% of Fairfax’s equity holdings are mark to market - this includes 'A.) Mark to Market' and 'D.) Other Holdings' - and will fluctuate each quarter with changes in equity markets. The other 51% are Associate and Consolidated holdings. 

 

Over the past couple of years the share of the mark to market portfolio has been falling. This means Fairfax's quarterly results will be less impacted by volatility in equity markets. That is an important development.

 

 

 Split of total gains by accounting treatment

• The total change is an increase of $496 million = $21.55/share
• The mark to market change is increase of $206 million = $8.94/share. Only changes in this bucket of holdings will show up in ‘net gains (losses) on investments’ (along with changes in the value of the fixed income portfolio) when Fairfax reports results each quarter.

 

What were the big movers in the equity portfolio Q1-YTD?

• Eurobank was up $351 million and it is now Fairfax’s largest equity holding at $2.5 billion. Eurobank reports results March 7. It will be interesting to see if they initiate a dividend. 
• The FFH-TRS was up $283 million. This position is now Fairfax’s second largest holding. The investment is up a total of $1.356 billion over the last 3 years, which is a gain of 185%. Simply an amazing investment.
• Thomas Cook India delivered a very strong Q4 to cap off a stellar 2023. Fairfax’s position was up $103 million. People are travelling again in India! 
• Kennedy Wilson was down $48 million. The company has been hit hard by concerns in office real estate segment. The value to Fairfax from this holding is not its equity exposure. The value is the extensive partnership the two companies have established over the past 12 years, most recently in significantly expanding the real estate debt platform. I wonder if Fairfax does not use the current weakness in KW's share price to materially and opportunistically increase its stake in the company in 2024. That was the playbook Fairfax used with a number of holdings that were negatively impacted by Covid in 2020 - and these incremental investments have worked out extremely well for Fairfax a couple of years later.
• Blackberry continues to shrink in size, down $36 million. Blackberry is now a $130 million position = 0.21% of Fairfax’s $60 billion investment portfolio. In Q1, Fairfax also ended its $150 million debenture investment in Blackberry and Prem resigned from Blackberry’s board. The debenture was a $500 million dollar position in Sept 2020. This is another good example of Fairfax exiting from a poorly performing legacy investment (financially and also in terms of involvement from the management team). Capital at Fairfax continues to shift to better opportunities. The clean-up of poorly performing equity investments looks largely completed – understanding that there will always be a few underperformers. 

 

Excess of fair value over carrying value (not captured in book value)

 

Carrying value in this section is understated by quite a bit as it does not capture Q4, 2023. I will update this once the annual report is released. For Associate and Consolidated holdings, the excess of fair value to carrying value is about $1.445 billion or $62/share (pre-tax). Book value at Fairfax is understated by about this amount (less the tax impact). Below is the split.

• Associates:        $1.048 million = $45/share
• Consolidated:       $397 million = $17/share

Below is a copy of my Excel spreadsheet (next 2 pages) if you want a closer look.

 

Equity Tracker Spreadsheet explained:

 

The summary below attempts to track all equity holdings at Fairfax. Each quarter the spreadsheet is updated to capture any ‘new news:’ purchases and sales. 

 

We have separated holdings by accounting treatment:

• Mark to market
• Associates – Equity accounted
• Consolidated
• Other Holdings – derivatives (total return swaps), debentures and warrants

We come up with the value of each holding by multiplying the share price by the number of shares. Are holdings are tracked in US$, so non-US holdings have their values adjusted for currency. 

 

Important: the list is not complete. Some information we only get once per year when Fairfax published their annual report. Fairfax also makes changes to their portfolio each quarter. 

 

 

Fairfax Feb 29 2024.xlsx

Edited March 1 by Viking

[dartmonkey]

Blackberry is now a $130 million position = 0.0021% of Fairfax’s $60 billion investment portfolio.

 

 

Thank you so much for this summary, much appreciated.

 

Minor quibble about a decimal place: Blackberry seems to be on the way to being 0.0021%, but it's not there yet. 130/60,000 is 0.0021 but that means it's still 0.21%.

 

One other quibble - I would add one word to this sentence: This is another good example of Fairfax FINALLY exiting from a poorly performing legacy investment (financially and also in terms of involvement from the management team). Capital at Fairfax continues to shift to better opportunities.

 

 

[giulio]

Increased position in JKH through debt conversion. FFH now owns close to 20%.

https://www.ft.lk/top-story/Fairfax-converts-Rs-14-3-b-worth-debt-into-equity-at-JKH/26-759025

[Viking]

42 minutes ago, dartmonkey said:

Blackberry is now a $130 million position = 0.0021% of Fairfax’s $60 billion investment portfolio.

 

Thank you so much for this summary, much appreciated.

 

Minor quibble about a decimal place: Blackberry seems to be on the way to being 0.0021%, but it's not there yet. 130/60,000 is 0.0021 but that means it's still 0.21%.

 

One other quibble - I would add one word to this sentence: This is another good example of Fairfax FINALLY exiting from a poorly performing legacy investment (financially and also in terms of involvement from the management team). Capital at Fairfax continues to shift to better opportunities.

@dartmonkey i made the correction. Thanks for pointing it out (accuracy is important). I think lots of investor are very happy to see Fairfax significantly shrinking its investment/involvement in Blackberry. Moving in the right direction.

[Viking]

26 minutes ago, giulio said:

Increased position in JKH through debt conversion. FFH now owns close to 20%.

https://www.ft.lk/top-story/Fairfax-converts-Rs-14-3-b-worth-debt-into-equity-at-JKH/26-759025

@giulio that is a great article. I will update my spreadsheet to capture the new news. I really appreciate you (and everyone) pointing out things i have missed. Great community. 

Edited March 1 by Viking

[gfp]

@Viking if you are really a stickler for detail and this post is as of end of February, the Orla mining percentage ownership is low as well

https://www.fairfax.ca/press-releases/fairfax-announces-acquisition-of-additional-orla-shares-3/

[LC]

2 hours ago, StubbleJumper said:

Wouldn't be the first time that I did something dumb in pursuit of money that I didn't really need!

 

I chuckled

 

What % are you in FFH? Purchases due to muddy waters took me  over 45% I view it as having good known baseline performance over the next few years (due to the bond positioning), some potential for further outperformance (depending on the insurance market, investment performance). But I am looking to pare it down as I find investments with more upside torque. 

[StubbleJumper]

2 hours ago, LC said:

I chuckled

 

What % are you in FFH? Purchases due to muddy waters took me  over 45% I view it as having good known baseline performance over the next few years (due to the bond positioning), some potential for further outperformance (depending on the insurance market, investment performance). But I am looking to pare it down as I find investments with more upside torque. 

 

Yeah, I'm over 50% at this point.  I like high conviction positions, but that's going beyond reasonable.  It's an insurer, which makes it even more irresponsible and unwise.  I know that I ought to take it back down to 30-35%, but...

 

 

SJ

[Luke]

Thing is, i can not find anything looking as good as FFH right now that i dont already fully own, which makes "rebalancing" redundant at the moment.

Edited March 1 by Luca

[Hoodlum]

Is there any black out period before the release of the Annual Report?  

[Viking]

6 hours ago, gfp said:

@Viking if you are really a stickler for detail and this post is as of end of February, the Orla mining percentage ownership is low as well

https://www.fairfax.ca/press-releases/fairfax-announces-acquisition-of-additional-orla-shares-3/

 

@gfp Thanks. My master has been updated. My math says they have spent about US$61 million in Jan/Feb adding to their Orla position. It is about a $183 million position today.