Fairfax stock positions

[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 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 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 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/

[petec]

21 hours ago, nwoodman said:

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

 

Not necessarily - the 50% includes buybacks. But it is still great.

 

Don't Fairfax have 1224m shares in total? If so, by 2026 the BVPS is expected to be E2.65 and rotbv 13% so it's more like 2.65*0.13*.5*1.09*1224=$230m. Lovely!

[nwoodman]

1 hour ago, petec said:

 

Not necessarily - the 50% includes buybacks. But it is still great.

 

Don't Fairfax have 1224m shares in total? If so, by 2026 the BVPS is expected to be E2.65 and rotbv 13% so it's more like 2.65*0.13*.5*1.09*1224=$230m. Lovely!

Agree with you and @Viking on the share count,  I grabbed an old spreadsheet from my downloads folder, that will teach me.

 

https://www.eurobankholdings.gr/en/investor-relations/shareholders/shareholding-structure

 

A decent chunk of change that will improve their cashflow dramatically.  

 

 

[SafetyinNumbers]

On 3/5/2024 at 1:28 PM, 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 it’s a $300m+ position.

There was no explicit mention of Strathacona but I think we can deduce from the note on limited partnerships that it’s the third largest investment at $235.3m. Based on SCR.TO ‘s closing price (C$21.43) at the end of 2023, I estimate FFH owns ~14.5m shares or ~6.8% on a look through basis.  I think FFH is up $32m on it so far this year. It might be actually more but offset by carry accrued.
 

In 2022 when it was private, the position was valued at $374.8m so it might still be a bargain. I think it’s a pretty interesting event driven special situation but also have thoughts of holding it for the long term.
 

The GP is incentivized to get the shares to fair value. Their plan to rerate the shares  is to start returning capital when debt to EBITDA gets to ~1x. That should happen later this year. At $80 WTI, they expect to have C$1b of FCF or a ~20% FCF yield on the current market cap after maintenance and growth capex. 
 

Besides quant and passive, the only other buyers on upticks are yield buyers. So it will be interesting if it works given there is a lot of competing yield out there. Management is contemplating a regular dividend with special dividends.
 

Once the shares are rerated, they plan to use equity for M&A. This will allow for accretive growth, increased liquidity and public float. While they don’t state it explicitly, this will help the shares qualify for the S&P/TSX which will bring in passive buyers. That will give institutional shareholders a reason to look at SCR. Currently, no institution has to own it because it’s not in anyone’s benchmark despite being a C$5b company. 
 

 

 

Edited March 9 by SafetyinNumbers

[Daphne]

Farming in the time of war: How Prem Watsa’s Fairfax Financial built an agribusiness portfolio in Ukraine

ERIC REGULYEUROPEAN BUREAU CHIEF

KYIV

PUBLISHED YESTERDAY

 

[lathinker]

Do people on this board have toughts on Commercial International Bank ? It is the largest position of the "Common Stocks - Mark-To-Market" section with a value of 480m USD per end of 2023. In the annual letter, Prem states that "The key driver of value to Fairfax and other foreign investors in CIB is the stability of the Egyptian Pound."

 

Well, last week, we learned that the stability is a thing of the past since the EGP was devalued from about 30 to 50 per USD and Egypt received an IMF package. Interest rates stand at 28%:

 

https://www.reuters.com/world/middle-east/egypt-raises-interest-rates-by-600-bps-pound-tumbles-2024-03-06/

 

It is still a small position in relation to FFH and the development may not even harm CIB too much, but it underscores the risks of EM investing.

[Viking]

As of March 8, 2024, my guess is Fairfax has an investment portfolio that totals about $67 billion, with the split being roughly as follows:

 

 

In this post we review the holdings in the equities ‘bucket.’ To value a holding, we normally use current ‘market value,’ which is the stock price at March 8, 2024, multiplied by the number of shares Fairfax owns. For private holdings we use Fairfax’s latest reported market value, which was Dec 31, 2023. Derivative holdings, like the FFH-TRS, are included at their notional value. 

 

Additional notes:

• Mytilineos *: includes exchangeable bonds
• John Keells *: includes convertible debentures

What holdings are missing from my list below? AGT Food Ingredients and new purchase Meadow Foods (2023) are two that come to mind. I just have no idea what they are worth. Let me know if you have an estimate.  

 

Ok, let’s get to the fun part of this post.

 

What are some of the key take-aways?

 

Below are mine. What are yours?

 

1.) Fairfax has a pretty concentrated portfolio

• The top 3 holdings make up 36% of the total
• The top 10 holdings make up 56% of the total

2.) Steady improvement in quality of the top holdings over the past 6 years: What happened?

• New money has been invested at Fairfax very well (FFH-TRS, buying more of existing holdings)
• Some high quality businesses have continued to execute well (Fairfax India, Stelco)
• Some businesses, after years of effort, have turned around (Eurobank).
• Some businesses that were severely affected by Covid have emerged stronger (Thomas Cook India, BIAL)
• Some businesses were restructured/taken private (Exco, AGT) and are now performing much better.
• Some low quality businesses were sold/merged/wound down (Resolute Forest Products, APR, Fairfax Africa).
• Some low quality businesses have shrunk in size due to poor results (BlackBerry, Farmers Edge, Boat Rocker).

The important point is the quality of Fairfax’s largest holdings have steadily been increasing. And this should result in higher overall returns from the equity portfolio in the coming years.

 

3.) What rate of return should this collection of equity holdings be able to deliver in 2024?

• 12% return x $19 billion = $2.3 billion
  • share of profit of associates ($1.05 billion)
  • dividends ($200 million)
  • ‘other’ consolidated non-insurance co’s ($100 million)
  • investment gains ($650)
  • for associate holdings, change in excess of carrying value to market value ($300 million)

This looks like a reasonable target for 2024, looking at the solid prospects/earnings profiles of the current holdings.

 

4.) A slow shift away from mark-to-market holdings. Today, less than 50% of the total portfolio is held in the mark-to-market bucket. Back in 2019, my guess is closer to 80% of the total portfolio was held in the mark-to-market bucket.

• This shift should have the effect of smoothing Fairfax’s reported results moving forward, especially during bear markets. As a reminder, in Q1, 2020, Fairfax had $1.1 billion in unrealized losses (when the equity portfolio was much smaller). As more holdings shift to the ‘Associates’ and ‘Consolidated’ buckets, it is the trend in underlying earnings at the individual holdings that will matter to Fairfax’s reported results and not a stock price - earnings are much more consistent than a stock price. Lower volatility in reported earnings should help Fairfax’s valuation (as volatility is considered bad by Mr. Market).
• This shift will also start to create a Berkshire Hathaway problem for Fairfax: over time book value will become an increasingly poor tool to use to value Fairfax. Why? The value of the ‘Associates’ and ‘Consolidated’ companies captured in book value each year will fall short of the increase in their true economic value. Fairfax India is a good example of this today. Eurobank is a holding to watch moving forward.

Bottom line, Fairfax looks very well positioned today. But the story gets better: like the past 6 years, I expect the quality of Fairfax's equity holdings to continue to improve in 2024. That will improve future returns. And, like a virtuous circle, the growing cash flows will be re-invested growing the companies even more.

 

Thoughts? Am I missing something? What number below is most wrong? Why?

 

 

 

Edited March 10 by Viking

[SafetyinNumbers]

7 hours ago, Viking said:

As of March 8, 2024, my guess is Fairfax has an investment portfolio that totals about $67 billion, with the split being roughly as follows:

 

 

In this post we review the holdings in the equities ‘bucket.’ To value a holding, we normally use current ‘market value,’ which is the stock price at March 8, 2024, multiplied by the number of shares Fairfax owns. For private holdings we use Fairfax’s latest reported market value, which was Dec 31, 2023. Derivative holdings, like the FFH-TRS, are included at their notional value. 

 

Additional notes:

• Mytilineos *: includes exchangeable bonds
• John Keells *: includes convertible debentures

What holdings are missing from my list below? AGT Food Ingredients and new purchase Meadow Foods (2023) are two that come to mind. I just have no idea what they are worth. Let me know if you have an estimate.  

 

Ok, let’s get to the fun part of this post.

 

What are some of the key take-aways?

 

Below are mine. What are yours?

 

1.) Fairfax has a pretty concentrated portfolio

• The top 3 holdings make up 36% of the total
• The top 10 holdings make up 56% of the total

2.) Steady improvement in quality of the top holdings over the past 6 years: What happened?

• New money has been invested at Fairfax very well (FFH-TRS, buying more of existing holdings)
• Some high quality businesses have continued to execute well (Fairfax India, Stelco)
• Some businesses, after years of effort, have turned around (Eurobank).
• Some businesses that were severely affected by Covid have emerged stronger (Thomas Cook India, BIAL)
• Some businesses were restructured/taken private (Exco, AGT) and are now performing much better.
• Some low quality businesses were sold/merged/wound down (Resolute Forest Products, APR, Fairfax Africa).
• Some low quality businesses have shrunk in size due to poor results (BlackBerry, Farmers Edge, Boat Rocker).

The important point is the quality of Fairfax’s largest holdings have steadily been increasing. And this should result in higher overall returns from the equity portfolio in the coming years.

 

3.) What rate of return should this collection of equity holdings be able to deliver in 2024?

• 12% return x $19 billion = $2.3 billion
  • share of profit of associates ($1.05 billion)
  • dividends ($200 million)
  • ‘other’ consolidated non-insurance co’s ($100 million)
  • investment gains ($650)
  • for associate holdings, change in excess of carrying value to market value ($300 million)

This looks like a reasonable target for 2024, looking at the solid prospects/earnings profiles of the current holdings.

 

4.) A slow shift away from mark-to-market holdings. Today, less than 50% of the total portfolio is held in the mark-to-market bucket. Back in 2019, my guess is closer to 80% of the total portfolio was held in the mark-to-market bucket.

• This shift should have the effect of smoothing Fairfax’s reported results moving forward, especially during bear markets. As a reminder, in Q1, 2020, Fairfax had $1.1 billion in unrealized losses (when the equity portfolio was much smaller). As more holdings shift to the ‘Associates’ and ‘Consolidated’ buckets, it is the trend in underlying earnings at the individual holdings that will matter to Fairfax’s reported results and not a stock price - earnings are much more consistent than a stock price. Lower volatility in reported earnings should help Fairfax’s valuation (as volatility is considered bad by Mr. Market).
• This shift will also start to create a Berkshire Hathaway problem for Fairfax: over time book value will become an increasingly poor tool to use to value Fairfax. Why? The value of the ‘Associates’ and ‘Consolidated’ companies captured in book value each year will fall short of the increase in their true economic value. Fairfax India is a good example of this today. Eurobank is a holding to watch moving forward.

Bottom line, Fairfax looks very well positioned today. But the story gets better: like the past 6 years, I expect the quality of Fairfax's equity holdings to continue to improve in 2024. That will improve future returns. And, like a virtuous circle, the growing cash flows will be re-invested growing the companies even more.

 

Thoughts? Am I missing something? What number below is most wrong? Why?

 

 

 

SCR.TO is held in the Limited Partnerships bucket but I think it’s about 14.5m shares so just qualifies for the top 20. Probably not worth tracking unless it makes an outsized move. 

[Viking]

4 hours ago, SafetyinNumbers said:

SCR.TO is held in the Limited Partnerships bucket but I think it’s about 14.5m shares so just qualifies for the top 20. Probably not worth tracking unless it makes an outsized move. 

Thanks for the heads up. This one looks large enough. I’ll likely add it tomorrow  

[glider3834]

12 hours ago, Viking said:

As of March 8, 2024, my guess is Fairfax has an investment portfolio that totals about $67 billion, with the split being roughly as follows:

 

 

In this post we review the holdings in the equities ‘bucket.’ To value a holding, we normally use current ‘market value,’ which is the stock price at March 8, 2024, multiplied by the number of shares Fairfax owns. For private holdings we use Fairfax’s latest reported market value, which was Dec 31, 2023. Derivative holdings, like the FFH-TRS, are included at their notional value. 

 

Additional notes:

• Mytilineos *: includes exchangeable bonds
• John Keells *: includes convertible debentures

What holdings are missing from my list below? AGT Food Ingredients and new purchase Meadow Foods (2023) are two that come to mind. I just have no idea what they are worth. Let me know if you have an estimate.  

 

Ok, let’s get to the fun part of this post.

 

What are some of the key take-aways?

 

Below are mine. What are yours?

 

1.) Fairfax has a pretty concentrated portfolio

• The top 3 holdings make up 36% of the total
• The top 10 holdings make up 56% of the total

2.) Steady improvement in quality of the top holdings over the past 6 years: What happened?

• New money has been invested at Fairfax very well (FFH-TRS, buying more of existing holdings)
• Some high quality businesses have continued to execute well (Fairfax India, Stelco)
• Some businesses, after years of effort, have turned around (Eurobank).
• Some businesses that were severely affected by Covid have emerged stronger (Thomas Cook India, BIAL)
• Some businesses were restructured/taken private (Exco, AGT) and are now performing much better.
• Some low quality businesses were sold/merged/wound down (Resolute Forest Products, APR, Fairfax Africa).
• Some low quality businesses have shrunk in size due to poor results (BlackBerry, Farmers Edge, Boat Rocker).

The important point is the quality of Fairfax’s largest holdings have steadily been increasing. And this should result in higher overall returns from the equity portfolio in the coming years.

 

3.) What rate of return should this collection of equity holdings be able to deliver in 2024?

• 12% return x $19 billion = $2.3 billion
  • share of profit of associates ($1.05 billion)
  • dividends ($200 million)
  • ‘other’ consolidated non-insurance co’s ($100 million)
  • investment gains ($650)
  • for associate holdings, change in excess of carrying value to market value ($300 million)

This looks like a reasonable target for 2024, looking at the solid prospects/earnings profiles of the current holdings.

 

4.) A slow shift away from mark-to-market holdings. Today, less than 50% of the total portfolio is held in the mark-to-market bucket. Back in 2019, my guess is closer to 80% of the total portfolio was held in the mark-to-market bucket.

• This shift should have the effect of smoothing Fairfax’s reported results moving forward, especially during bear markets. As a reminder, in Q1, 2020, Fairfax had $1.1 billion in unrealized losses (when the equity portfolio was much smaller). As more holdings shift to the ‘Associates’ and ‘Consolidated’ buckets, it is the trend in underlying earnings at the individual holdings that will matter to Fairfax’s reported results and not a stock price - earnings are much more consistent than a stock price. Lower volatility in reported earnings should help Fairfax’s valuation (as volatility is considered bad by Mr. Market).
• This shift will also start to create a Berkshire Hathaway problem for Fairfax: over time book value will become an increasingly poor tool to use to value Fairfax. Why? The value of the ‘Associates’ and ‘Consolidated’ companies captured in book value each year will fall short of the increase in their true economic value. Fairfax India is a good example of this today. Eurobank is a holding to watch moving forward.

Bottom line, Fairfax looks very well positioned today. But the story gets better: like the past 6 years, I expect the quality of Fairfax's equity holdings to continue to improve in 2024. That will improve future returns. And, like a virtuous circle, the growing cash flows will be re-invested growing the companies even more.

 

Thoughts? Am I missing something? What number below is most wrong? Why?

 

 

 

thanks viking

 

smaller private holding but Sporting Life/Golf town might be close to a top 30 - carrying value of US$61M (C$82M) or 4xFCF - potential market valuation??

 

revenues up ~50% since 2019 

 

curious if anyone has checked out any of their team town sports stores - thoughts/feedback?

https://retail-insider.com/retail-insider/2024/03/sporting-life-groups-team-town-sports-chain-expanding-national-footprint/

 

 

[petec]

On 3/9/2024 at 1:19 AM, SafetyinNumbers said:

There was no explicit mention of Strathacona but I think we can deduce from the note on limited partnerships that it’s the third largest investment at $235.3m. Based on SCR.TO ‘s closing price (C$21.43) at the end of 2023, I estimate FFH owns ~14.5m shares or ~6.8% on a look through basis.  I think FFH is up $32m on it so far this year. It might be actually more but offset by carry accrued.
 

In 2022 when it was private, the position was valued at $374.8m so it might still be a bargain. I think it’s a pretty interesting event driven special situation but also have thoughts of holding it for the long term.
 

The GP is incentivized to get the shares to fair value. Their plan to rerate the shares  is to start returning capital when debt to EBITDA gets to ~1x. That should happen later this year. At $80 WTI, they expect to have C$1b of FCF or a ~20% FCF yield on the current market cap after maintenance and growth capex. 
 

Besides quant and passive, the only other buyers on upticks are yield buyers. So it will be interesting if it works given there is a lot of competing yield out there. Management is contemplating a regular dividend with special dividends.
 

Once the shares are rerated, they plan to use equity for M&A. This will allow for accretive growth, increased liquidity and public float. While they don’t state it explicitly, this will help the shares qualify for the S&P/TSX which will bring in passive buyers. That will give institutional shareholders a reason to look at SCR. Currently, no institution has to own it because it’s not in anyone’s benchmark despite being a C$5b company. 
 

 

 

 

I'm coming late to this s sorry if these questions are stupid. 

1) What are these limited partnerships, exactly? Investments in funds? Or specific investments alongside a GP/manager? IN which case who is the GP?

2) Why do we think this is Strathcona?

 

20% at $80WTI doesn't feel outstanding given the other fossil fuel FCF yields out there?

[petec]

On 3/9/2024 at 8:15 PM, lathinker said:

Do people on this board have toughts on Commercial International Bank ? It is the largest position of the "Common Stocks - Mark-To-Market" section with a value of 480m USD per end of 2023. In the annual letter, Prem states that "The key driver of value to Fairfax and other foreign investors in CIB is the stability of the Egyptian Pound."

 

Well, last week, we learned that the stability is a thing of the past since the EGP was devalued from about 30 to 50 per USD and Egypt received an IMF package. Interest rates stand at 28%:

 

https://www.reuters.com/world/middle-east/egypt-raises-interest-rates-by-600-bps-pound-tumbles-2024-03-06/

 

It is still a small position in relation to FFH and the development may not even harm CIB too much, but it underscores the risks of EM investing.

 

Like many EM banks, it is an exceptional business but the returns will be dominated by government choices. Ultimately if Egypt stays socialist, this won't work out, because inflation will be higher than the ROE. If Egypt reforms, however...

[SafetyinNumbers]

2 hours ago, petec said:

 

I'm coming late to this s sorry if these questions are stupid. 

1) What are these limited partnerships, exactly? Investments in funds? Or specific investments alongside a GP/manager? IN which case who is the GP?

2) Why do we think this is Strathcona?

 

20% at $80WTI doesn't feel outstanding given the other fossil fuel FCF yields out there?

Best to read the disclosure but would seem like mostly private equity type investments where FFH is an LP with a variety of GPs. I think SCR is in the portfolio because they mentioned a mark-to-market loss related Waterous in Q4 on the CC. Waterous owns 91% of SCR via their fund and is the GP. The disclosure in the AR showed that an oil and gas investment declined significantly last year and SCR was listed on the TSX in October via reverse takeover and promptly traded down more than a third from where it was marked. I think there is enough evidence to make a fairly high conviction conclusion that it’s SCR.
 

If you are finding 20% dividend yields on $5b market caps in energy with 7-9% growth and ~30 year reserve lives, maybe SCR isn’t for you but it will probably help FFH get to a 15%+ ROE.

[petec]

6 hours ago, SafetyinNumbers said:

Best to read the disclosure but would seem like mostly private equity type investments where FFH is an LP with a variety of GPs. I think SCR is in the portfolio because they mentioned a mark-to-market loss related Waterous in Q4 on the CC. Waterous owns 91% of SCR via their fund and is the GP. The disclosure in the AR showed that an oil and gas investment declined significantly last year and SCR was listed on the TSX in October via reverse takeover and promptly traded down more than a third from where it was marked. I think there is enough evidence to make a fairly high conviction conclusion that it’s SCR.

 

Perfect, thanks. I missed the Waterous comment on the call.

 

6 hours ago, SafetyinNumbers said:

If you are finding 20% dividend yields on $5b market caps in energy with 7-9% growth and ~30 year reserve lives, maybe SCR isn’t for you but it will probably help FFH get to a 15%+ ROE.

 

Wasn't a complaint, more a comment that the whole sector (with some clear exceptions) is fairly cheap. I didn't realise SCR was growing that fast, I admit. 

[Xerxes]

10 hours ago, petec said:

 

Like many EM banks, it is an exceptional business but the returns will be dominated by government choices. Ultimately if Egypt stays socialist, this won't work out, because inflation will be higher than the ROE. If Egypt reforms, however...

If they are betting on Egypt reforming, this is a very bad bet. Egyptian economy is enslaved to its Army and the latter has deep entrenched business interests. 
 

Might as well call their army, a state within a state, with its pawn in everything including coffee shops 

 

Edited March 11 by Xerxes

[SafetyinNumbers]

2 hours ago, petec said:

 

Perfect, thanks. I missed the Waterous comment on the call.

 

 

Wasn't a complaint, more a comment that the whole sector (with some clear exceptions) is fairly cheap. I didn't realise SCR was growing that fast, I admit. 

Any sector that doesn’t screen well for quants i.e. not quality, is pretty cheap I think. I like SCR in particular because Waterous is incentivized to get the stock up to do accretive acquisitions. Right now, it’s really hard for heuristic investors to own SCR but If they execute the plan, they start ticking boxes which will increase the number of potential buyers. The share price is just supply and demand after all. 
 

The dividend announcement will help in three ways. In energy, investors want debt/cash flow < 1x, they want a capital return policy and they want liquidity. The dividend ticks 1 and 2. The dividend should attract yield investors who don’t mind buying on upticks providing multiple expansion and liquidity. 
 

With a higher share price, SCR will be able to make accretive acquisitions and extend the tax shelter beyond 2026. This will also increase liquidity and give SCR a chance to get into the S&P/TSX. That’s the plan from what I can tell but we’ll see if it actually works or if buying shows up in anticipation of the dividend announcement closer to the date. I think six months away is too much for event driven investors. That are a lot of places to put money to work these days. 

[glider3834]

On 3/6/2024 at 5:28 AM, 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.

will check this out thanks