Fairfax stock positions

[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, 2024 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, 2024 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, 2024 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.

[petec]

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

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.  

 

I think they have a chunk of Ensign (ESI.TO) as well, which trades at a >40% FCF yield and is highly operationally and financially levered to oil/gas prices. 

[SafetyinNumbers]

4 hours ago, petec said:

 

I think they have a chunk of Ensign (ESI.TO) as well, which trades at a >40% FCF yield and is highly operationally and financially levered to oil/gas prices. 

 

They also own Strathacona (SCR.TO) based on disclosure on the conference call that there was a mark-to-market loss on a Waterous LP investment. SCR is closer to a 20% FCF yield at $80 oil with capital return expected to start in H2 following debt reduction. Looking forward to seeing the annual report to determine how much they indirectly own. Wouldn't shock me if its a $300m+ position.

[petec]

23 hours ago, SafetyinNumbers said:

 

They also own Strathacona (SCR.TO) based on disclosure on the conference call that there was a mark-to-market loss on a Waterous LP investment. SCR is closer to a 20% FCF yield at $80 oil with capital return expected to start in H2 following debt reduction. Looking forward to seeing the annual report to determine how much they indirectly own. Wouldn't shock me if its a $300m+ position.

 

I'd missed that one.

[nwoodman]

Eurobank Earnings are out

 

EPS of 0.31 for the year

Looking to transition to 50% payout over the next couple of years

 

 

“In a lower interest rates environment, Eurobank aims to generate resilient returns to shareholders, which will be further enhanced by the full integration of Hellenic Bank in Cyprus, capitalizing on the strong franchise in Greece, organic growth and strategic initiatives in Cyprus and Bulgaria. The ROE' is expected to reach 18% in 2024 and circa 15% beyond 2024, while the payout ratio will gradually increase towards 50% of profits in

20264. Eurobank, as a regional bank with diversified earnings stream, aims to ensure top line growth amid a lower rates environment, with non-Greek operations contributing c. 50% to the Group core profit in 2026. The 2024-2026 financial goals are as follows:

 

 

https://www.eurobankholdings.gr/-/media/holding/omilos/enimerosi-ependuton/enimerosi-metoxon-eurobank/oikonomika-apotelesmata-part-01/2023/fy-2023/4q2023-results-pr-eng.pdf

 

Edit: MS take on earnings attached

EUROBANK_20240307_1929.PDF

Edited March 7, 2024 by nwoodman

[Viking]

27 minutes ago, nwoodman said:

Eurobank Earnings are out

 

EPS of 0.31 for the year

Looking to transition to 50% payout over the next couple of years

 

 

“In a lower interest rates environment, Eurobank aims to generate resilient returns to shareholders, which will be further enhanced by the full integration of Hellenic Bank in Cyprus, capitalizing on the strong franchise in Greece, organic growth and strategic initiatives in Cyprus and Bulgaria. The ROE' is expected to reach 18% in 2024 and circa 15% beyond 2024, while the payout ratio will gradually increase towards 50% of profits in

20264. Eurobank, as a regional bank with diversified earnings stream, aims to ensure top line growth amid a lower rates environment, with non-Greek operations contributing c. 50% to the Group core profit in 2026. The 2024-2026 financial goals are as follows:

 

 

https://www.eurobankholdings.gr/-/media/holding/omilos/enimerosi-ependuton/enimerosi-metoxon-eurobank/oikonomika-apotelesmata-part-01/2023/fy-2023/4q2023-results-pr-eng.pdf

 

Edit: MS take on earnings attached

EUROBANK_20240307_1929.PDF 232.9 kB · 5 downloads

What a simply amazing year for Eurobank. Transformational. Their website is painfully slow right now? Below is a link to their full year results presentation. I think Eurobank is sandbagging their 2024 estimates. And that is the sign of a strong management team - underpromise and overdeliver. That is the same playbook they used in 2023 and 2022. They do not feel any pressure to be overly aggressive with financial targets. 
 

I am looking forward to seeing details of what the 25% payout (of 2023 baseline earnings) will look like - what the split is between dividend and stock buybacks.

 

Eurobank is a $2.5 billion position for Fairfax today. A 15% return = $375 million; 20% = $500 million. This investment has quickly turned into a home run for Fairfax. And i think it is just getting started. A double in the stock price over the next 4 years is not a crazy target.

 

https://www.athexgroup.gr/documents/10180/7345283/64_1619_2024_Greek_+English_3.pdf/eb92609a-213d-4272-91a7-435f35389bb4

 

 

[nwoodman]

Eurobank moving to a 50% payout means close to $200m a year in cash coming to Fairfax.  That is staggering.  Buffett talks about the Coca Cola dividend,  Euro bank will be in that league

 

1166m shares x €0.15 x 1.09 €/USS = USD 190.6

Edited March 7, 2024 by nwoodman

[glider3834]

1 hour ago, Viking said:

What a simply amazing year for Eurobank. Transformational. Their website is painfully slow right now? Below is a link to their full year results presentation. I think Eurobank is sandbagging their 2024 estimates. And that is the sign of a strong management team - underpromise and overdeliver. That is the same playbook they used in 2023 and 2022. They do not feel any pressure to be overly aggressive with financial targets. 
 

I am looking forward to seeing details of what the 25% payout (of 2023 baseline earnings) will look like - what the split is between dividend and stock buybacks.

 

Eurobank is a $2.5 billion position for Fairfax today. A 15% return = $375 million; 20% = $500 million. This investment has quickly turned into a home run for Fairfax. And i think it is just getting started. A double in the stock price over the next 4 years is not a crazy target.

 

https://www.athexgroup.gr/documents/10180/7345283/64_1619_2024_Greek_+English_3.pdf/eb92609a-213d-4272-91a7-435f35389bb4

 

 

worth noting too they have assumed their Hellenic stake stays at 55.3% thru 2024-26 as part of their 2024-2026 guidance so there is potential upside if full takeover gets approved

 

 

[Viking]

I just listened to the Eurobank 2023 YE conference call. Their aggressive actions the past 3 years have positioned the bank exceptionally well. They are being very conservative with their estimates for 2024-2026. They have so many catalysts to boost earnings over guidance in 2024 and future years. The management team is laser focussed and is executing very well.

 

Why is Eurobank being so conservative?
1.) They need to get the Hellenic Bank acquisition approved by regulators. Status quo is the best way to do this. Cypress is a different country… and local people tend to be very protective of critical institutions like banking.

2.) Once approved, Eurobank will need to make a mandatory tender offer for the @45% of Hellenic Bank they do not own. So obviously Eurobank doesn’t want to drive the acquisition price even higher (by announcing big cost and revenue synergies prematurely).
 

Once Cypriot regulators approve the deal and after they own as much of the company as they can get - only after this happens - will Eurobank management more freely communicate on cost and revenue synergies. At least that is how things look to me. They are keeping their head down for now. Smart.

 

On the dividend, Eurobank expects to get confirmation from the regulator in May. They provided an estimate of €0.09/share. Fairfax owns about 1.224 billion shares.

 

€0.09 x 1,224 million shares = €110 million = US$120 million. That would be a material increase in total dividends received by Fairfax (from all sources) - perhaps an increase of about 80%. It would also be a material increase to ‘interest and dividends’ (from all sources) of about 5% - significant.

 

In Fairfax’s 2021 Annual Report, Prem mentioned that the average cost of Fairfax’s position in Eurobank was US$0.94/share = $1.1 billion. Fairfax made their first investment in Eurobank in Dec 2014. So, about 9 years later Fairfax could be getting a dividend yield of about 11% (from its cost base). And as @nwoodman pointed out earlier, this could increase quite a bit in the next couple of years.

 

The Eurobank acquisition has delivered other significant benefits to Fairfax over the years - like their 80% ownership of Eurolife (Eurobank stills owns 20%).
 

I don’t have a strong opinion on how Grivalia Hospitality is going to work out (Eurobank and GH management still owns 21.5%). But anything George Chryssikos has touched has worked out very well for Fairfax and its shareholders. 
 

Link to Eurobank’s conference call:

https://www.eurobankholdings.gr/en/investor-relations/financial-results-pages/financial-year-2023

PS: my share count is different from @nwoodman . I will update my numbers after Fairfax releases their annual report.

Edited March 8, 2024 by Viking

[Hoodlum]

This was in interesting write up on Fairfax’s Astarta-Kyiv business that they own 30% of. 
 

https://www.theglobeandmail.com/business/commentary/article-farming-in-the-time-of-war-how-prem-watsas-fairfax-financial-built-an/