Fairfax stock positions

[SafetyinNumbers]

On 3/26/2024 at 7:12 PM, valueventures said:

Strathcona is supposed to be releasing earnings tonight and having an earnings call tomorrow. 

SCR results looked fine. Confirmed they will reach the debt target to begin dividends at the end of Q2. The stock has already rerated somewhat from the lows but it’s still got a long way to go as it is trading well below NAV.
 

I think the analysts should be looking at it based on where the puck is going which is a tight float, strong execution and a dividend mean a rerating and eventual acquisition to get SCR into the Composite. Their reasons for not owning it have nothing to do with intrinsic value but a concern for where the puck is i.e. low liquidity and not in anyone’s benchmark.
 

Ironically, the tight float makes it easier for the shares to be rerated and some institutions may have already figured it’s better to own the shares before the dividends start and before they do an acquisition at valuation closer to NAV to backdoor their way into the Composite.

 

 

[This2ShallPass]

On 3/27/2024 at 10:16 AM, Viking said:

Quick question: how do you define 'high quality'? What metrics/criteria do you look at to help you determine if a company is 'high quality'?

 

@Viking good question. I can think of some characteristics that make a high quality company. Would love to hear from others also on their definition.

• Have a defensible moat. Something they do that's different than others (most commodity companies fail this test)
• Ability to consistently make money through good times and bad (not feast or famine like cyclical industries)
• Lower capex - no need to pour all the profits back into the business
• Consistent top and bottom line growth
• Solid balance sheet
• Price setters and not takers (again commodity companies fail this one)

Metrics could be growth rates, capital intensity (capex as a % of revenue), consistent FCF generation, debt coverage ratios, return on assets, equity, TBV etc..

 

[SafetyinNumbers]

15 hours ago, This2ShallPass said:

@Viking good question. I can think of some characteristics that make a high quality company. Would love to hear from others also on their definition.

• Have a defensible moat. Something they do that's different than others (most commodity companies fail this test)
• Ability to consistently make money through good times and bad (not feast or famine like cyclical industries)
• Lower capex - no need to pour all the profits back into the business
• Consistent top and bottom line growth
• Solid balance sheet
• Price setters and not takers (again commodity companies fail this one)

Metrics could be growth rates, capital intensity (capex as a % of revenue), consistent FCF generation, debt coverage ratios, return on assets, equity, TBV etc..

 

I can shorten this to anything that screens well.

[Viking]

Change in value of Fairfax’s equity portfolio in Q1 - 2024

 

Fairfax’s equity portfolio (that I track) had a total value of about $19 billion at March 31, 2024. This is an increase of about $585 million (pre-tax) or 3.2%, which is a solid start to 2024.

 

 

I include the FFH-TRS position in the mark to market bucket and at its notional value. 

 

My tracker portfolio is not an exact match to Fairfax’s actual holdings. My summary has been updated to include information from Fairfax’s 2023 annual report.

 

My tracker portfolio is useful only as a tool to understand the rough change in Fairfax’s equity portfolio (and not the precise change).

 

Split of total holdings by accounting treatment

 

About 48% of Fairfax’s equity holdings are mark to market - and will fluctuate each quarter with changes in equity markets. The other 52% are Associate and Consolidated holdings.

 

Over the past couple of years, the share of the mark to market portfolio has been shrinking. This means Fairfax's quarterly results will be less impacted by volatility in equity markets.

 

 

Split of total gains by accounting treatment

 

The total change is an increase of $585 million = $25.45/share

The mark to market change is an increase of $390 million = $16.96/share. The change 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?

• FFH-TRS is up $311 million. This position is now Fairfax’s second largest holding. 
• Eurobank is up $184 million and it is now Fairfax’s largest equity holding at $2.4 billion.
• Micron Technology is up $127 million. It is now a top-10 holding at $461 million.
• Thomas Cook India is up $108 million. TCIC continues its strong performance. 
• Commercial International Bank is down $118 million. Egypt devaluated its currency 40% on March 7. It is a well run bank. Country is an economic mess.

 

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

 

For Associate and Consolidated holdings, the excess of fair value to carrying value is about $1,206 million or $52/share (pre-tax). Book value at Fairfax is understated by about this amount.

• Associates:       $722 million = $31/share
• Consolidated:   $484 million = $21/share

Equity Tracker Spreadsheet explained:

 

We have separated holdings by accounting treatment: mark to market, associates – equity accounted, consolidated, other Holdings – total return swaps.

 

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. 

 

This spreadsheet contains errors. It is updates as new and better information becomes available.

 

 

 

 

Fairfax Mar 30 2024.xlsx

Edited March 30 by Viking

[longlake95]

Viking:

I apologize if you covered this in the various threads already, but, don't you find it very interesting that the TRS counter-party is the Canadian banks. I guess they (the banks) really do have a "Chinese wall", when you have the investment research side of the banks basically all pounding the table on FFH now. If the analysts are already onside/or coming on side recently, as to the value in FFH, then who the hell is making the call to be the counter party to the FFH swaps? Just seems very peculiar.

 

LL

 

[SafetyinNumbers]

1 minute ago, longlake95 said:

Viking:

I apologize if you covered this in the various threads already, but, don't you find it very interesting that the TRS counter-party is the Canadian banks. I guess they (the banks) really do have a "Chinese wall", when you have the investment research side of the banks basically all pounding the table on FFH now. If the analysts are already onside/or coming on side recently, as to the value in FFH, then who the hell is making the call to be the counter party to the FFH swaps? Just seems very peculiar.

 

LL

 

I hope Viking doesn’t mind me responding but I’m almost certain the Canadian banks that are acting as counterparties are fully hedged (i.e. they own the shares directly). The play here is the income they earn on financing the TRS for FFH. They are not betting against FFH, they are simply providing credit.

[longlake95]

Just now, SafetyinNumbers said:

I hope Viking doesn’t mind me responding but I’m almost certain the Canadian banks that are acting as counterparties are fully hedged (i.e. they own the shares directly). The play here is the income they earn on financing the TRS for FFH. They are not betting against FFH, they are simply providing credit.

okay, that makes sense, thanks, so the banks are the middle man... would love to know who the underlying counterparty is...

[SafetyinNumbers]

54 minutes ago, longlake95 said:

okay, that makes sense, thanks, so the banks are the middle man... would love to know who the underlying counterparty is...

FFH is long the swaps, Canadian banks are short the swaps and long FFH. I think that’s the whole picture. It could be if someone wanted to go short FFH via swaps, the banks would take the other side and sell some shares to offset their net position but that’s likely marginal at best.

[dartmonkey]

25 minutes ago, SafetyinNumbers said:

FFH is long the swaps, Canadian banks are short the swaps and long FFH. I think that’s the whole picture. 

Yes, it’s pretty unlikely they found counterparties that wanted 2 million shares’ worth of short exposure, when the shares were trading at US$373, so this explanation makes sense. In other words, FFH is long 2m shares and the banks are neutral. It’s basically just a dressed up share repurchase. Which also suggests that counting it as a long position and tracking its returns is a bit odd, since you wouldn’t do that with repurchased shares, if they had structured the transaction that way. 

[gfp]

35 minutes ago, dartmonkey said:

It’s basically just a dressed up share repurchase. Which also suggests that counting it as a long position and tracking its returns is a bit odd, since you wouldn’t do that with repurchased shares, if they had structured the transaction that way. 

 

It really isn't a dressed up share repurchase unless they ask the banks to close out the swaps by delivering the shares to them when they are ready to end the trade.  A share repurchase consumes cash and doesn't effect profit / loss or produce cash flow.  This trade does not consume cash (when it moves in their direction), directly effects profit / loss like any other equity position, and produces cash inflows (if it moves in their direction). 

 

 

[TwoCitiesCapital]

2 hours ago, longlake95 said:

Viking:

I apologize if you covered this in the various threads already, but, don't you find it very interesting that the TRS counter-party is the Canadian banks. I guess they (the banks) really do have a "Chinese wall", when you have the investment research side of the banks basically all pounding the table on FFH now. If the analysts are already onside/or coming on side recently, as to the value in FFH, then who the hell is making the call to be the counter party to the FFH swaps? Just seems very peculiar.

 

LL

 

 

Muddy Waters, perhaps?  I generally agree the banks were likely long the stock and then short the swaps collecting the financing spread for the bulk of the trade, but if they have a client who wants to short then they could offload some of that exposure to them by having them be the short-side of the swap that Fairfax is long and collect a spread from both counterparties while having no capital locked up themselves. 

 

It's possible that overtime they're unloading the share-hedge and offloading the short-risk to other clientele. 

 

49 minutes ago, gfp said:

 

It really isn't a dressed up share repurchase unless they ask the banks to close out the swaps by delivering the shares to them when they are ready to end the trade.  A share repurchase consumes cash and doesn't effect profit / loss or produce cash flow.  This trade does not consume cash (when it moves in their direction), directly effects profit / loss like any other equity position, and produces cash inflows (if it moves in their direction). 

 

 

 

Agreed. It doesn't make sense to mark the shares as cancelled either. Effectively, it gives Fairfax the economic benefit of going long its own shares, but it's not the same as cancelling them to other shareholders. Fairfax can exit the position at any time and is no longer exposed to the fluctuation in cash flows while the shares outstanding number doesn't change one iota. I think Viking's way of accounting for it (like it were any other MTM investment) makes the most sense until Fairfax cancels the shares. 

 

[Viking]

Gang, great discussion on the FFH-total return swaps. Question for board members: at what P/BV will Fairfax begin to exit the position? I will wade in with my estimate after others have chimed in. 

 

What Fairfax does with this position in the coming year (s) will be very interesting to watch. What they do with this position will likely give us a good indication of how they view their stock's valuation:

- keep the position in place as long as they view the shares as being undervalued.

- exit the position when they assess the shares are approaching fair value.

 

My guess is they will not want to hold the position if the shares are approaching fair value. It makes sense to me that they would start selling down the position when shares hit 95% of their fair value calculation. It is leverage - and as Buffett likes to remind us, leverage can cut both ways.

 

But with the EPS estimate being so robust over each of the next three years (at least) they probably will be very patient.

 

The wild card is all the cash Fairfax is earning right now. With buybacks, Fairfax has the ability to drive their share price higher and probably much higher. So they have an important element of control over their share price - which somewhat reduces the risk of holding this position.

 

It really is a crazy good set up right now.

---------

I am working on a valuation update post for Fairfax. I think the stock could return 50% over the next 24 months. If that happened the FFH-TRS would deliver a gain of $1 billion, or $500 million per year. That would be absolutely nuts.

 

What is the math to get to a 50% gain over the next 24 months? (2024 EPS = $160 + 2025 EPS = $165) x 1.3 P/BV. Not a crazy estimate.

 

Edited March 30 by Viking

[Dinar]

There may be a tax nuance with the swap.  If Fairfax takes delivery there might not be tax implications while if it cash settles it, then there will be a large taxable gain?  This in turn will likely affect the decision making of the company of when to terminate the swap.

[FearfulWhenOthersAreGreedy]

Personally I hope the TRS gets closed out soon, now that price has come back to reality, I own plenty of shares to benefit myself and don't wish for the extra leverage. Let's take the W and hold some cash for potential hard times. Has anyone done the math on the TRS.... i.e. 1 share equals 1.05? 

[gfp]

19 minutes ago, Dinar said:

There may be a tax nuance with the swap.  If Fairfax takes delivery there might not be tax implications while if it cash settles it, then there will be a large taxable gain?  This in turn will likely affect the decision making of the company of when to terminate the swap.

 

The profits have been cash settled periodically the entire holding period.  There is no lump sum gain at the "end."  What we don't know is if these gains are taxable at all.  In the United States, "profits" in an issuers own stock are not taxed.  Someone should ask this question at the annual meeting.

[dartmonkey]

2 hours ago, Dinar said:

There may be a tax nuance with the swap.  If Fairfax takes delivery there might not be tax implications while if it cash settles it, then there will be a large taxable gain?  This in turn will likely affect the decision making of the company of when to terminate the swap.

gfp: The profits have been cash settled periodically the entire holding period.  There is no lump sum gain at the "end."  What we don't know is if these gains are taxable at all.  In the United States, "profits" in an issuers own stock are not taxed. 

 

There are differences between the TRS position and a share repurchase, like taxes (FFH may pay taxes every year on the gains from the TRS, unless they get an exemption; on the other hand, there’s only a small repurchase tax up front for a share repurchase) and timing of the cash outflows. The latter is probably their reason for putting on the position and holding on to it now. But if they had the cash, I suspect they’d pay less taxes overall by doing the repurchase sooner rather than later, and using the proceeds from share price appreciation to buy back shares at much higher prices.

 

I say it’s a wash because the higher the price goes, the more they gain from the TRS but the more they will have to pay to repurchase the shares. For instance, they put on the trade at $373/share for the equivalent of 1.96m shares . A share repurchase of 1.96m shares would have cost $732.5m. If shares hit $1372, they would have made $1.96b, yippee, but at that new share price, they would have to pay 1.96*1372=$2.69b, which is, not coincidentally, $1.96b more than the repurchase would have cost when shares were at $373. It’s like Alice running in Through the Looking Glass: as fast as the TRSs run, they can never gain ground on the share repurchase that they could have done.

 

It’s a great trade either way, but whatever happens, it’s 1.96m shares they can retire with the returns, minus whatever tax applies. 

[Viking]

On 3/29/2024 at 3:04 PM, This2ShallPass said:

@Viking good question. I can think of some characteristics that make a high quality company. Would love to hear from others also on their definition.

• Have a defensible moat. Something they do that's different than others (most commodity companies fail this test)
• Ability to consistently make money through good times and bad (not feast or famine like cyclical industries)
• Lower capex - no need to pour all the profits back into the business
• Consistent top and bottom line growth
• Solid balance sheet
• Price setters and not takers (again commodity companies fail this one)

Metrics could be growth rates, capital intensity (capex as a % of revenue), consistent FCF generation, debt coverage ratios, return on assets, equity, TBV etc..

@This2ShallPass , i come at it in a very different way. of course, there is no ‘right way’. 
 

How should we define quality when looking at a holding? 

 

Here are a few things that come to mind:

• How good is the management team? Capital allocation?
• Is the company profitable? Is growth funded via retained earnings?
• What does its balance sheet look like? Leverage?
• Other considerations (geography, political/economic situation etc)?
• What has Fairfax’s return been since purchase?
• What are the future prospects of the business?
• Fairfax’s return potential looking forward?

What are the returns the equity portfolio is delivering over time? 

 

Fairfax has talked about having a 15% target/hurdle rate for its equity investments. The equity portfolio is about $19 billion. A 15% return = $2.85 billion.

 

Can Fairfax hit this target in 2024? 
 

I think they can. They actually could exceed it. 

• Dividends = $170 million
• Share of profit of associates = $1.03 billion
• Other / Non-insurance consolidated holdings = $150 million
• Mark to market investment gains = $1 billion
• Realized one-time investment gains = $300 million
• Change in excess of fair value over carrying value for associate and consolidated holdings = $200 million
• Total = $2.85 billion

Of course, these 6 buckets do not capture the total increase in the intrinsic value of all equity holdings each year. And realized one-time investment gains might come from insurance holdings (like a Digit IPO). So my estimates above might be off a little.

 

Bottom line, it looks like Fairfax’s 15% return target for its basket of equity holdings is roughly attainable in 2024. My guess is this comes as a surprise for most Fairfax shareholders. 
 

What happened?
 

The answer gets back to my ‘higher quality’ thesis for the equity holdings. Fairfax has been working its ass off the past 5 to 6 years improving the overall quality of its basket of equity holdings. It takes years for that work to show up in reported results. And that is what we are now seeing. We are learning what the true earnings power of the equity portfolio is today. 
 

The interesting thing is my guess is Fairfax is not done in its move up the quality ladder with its collection of holdings. This bodes well for higher future returns.

Total Return on Investment Portfolio

• Fixed income yield = 4.7%
• Equity return = 15%
• Total return on investment portfolio = 7.4%

Fairfax’s fixed income portfolio looks locked and loaded to deliver an average yield of +4.5% for the next 3 years.

 

The equity portfolio looks poised to deliver a return of around 15%. 
 

This suggests Fairfax may be able to deliver a total return on the investment portfolio of around 7.4% the next couple of years. My guess is most investors think a return of 7.4% is unsustainably high. I don’t think it is - at least for the next 2 or 3 years.
 

Further out? That will depend on the capital allocation decisions. Fairfax has been hitting the ball out of the park for the past 5 or 6 years. That is the main reason why they are poised to earn 7.4% in 2024. If they continue to make good capital allocation decisions i don’t see why total return on the investment portfolio can’t stay in the 7.5% range for the next 5 years.

 

Is that baked into the expectations of investors today? No, i don’t think it is.

Edited April 1 by Viking

[petec]

On 3/30/2024 at 1:49 PM, SafetyinNumbers said:

I can shorten this to anything that screens well.

 

Exactly why I *don't* want them to use this list.

[Viking]

Below is a chart updating Fairfax's top equity holdings to March 31, 2024. The total is about $19b. What stands out?

- Concentrated.

- International.

- Cyclical.

- Most holdings are well managed with solid prospects. That is a big, big change from what the portfolio looked like back in 2017. 6 years of hard work (fixing problems) and making good decisions (with new investments) is really starting to shine through. 

- Overall quality continues to improve. Higher quality means higher future earnings. We are seeing this show up in the different growing income streams at Fairfax. 

 

Total return of 15% = $2.85b. This looks attainable for Fairfax in 2024.

 

Please note, my definition of 'quality' is very loose: will the holding be able to deliver Fairfax a return of 15% per year? And lumpy is ok.

 

We know Fairfax's fixed income portfolio is locked and loaded for the next 4 years. If Fairfax's equity portfolio is able to start returning 15%... well guess what that means for Fairfax's total return on investments? Yes, a big number. 7.5% is probably a good base number to use for the next couple of years. 

 

Fairfax is also much more levered to investments (in terms of total earnings) than most P/C insurers. So earnings monster returns on its investment portfolio is a big deal.

 

Edited April 3 by Viking

[Luke]

25 minutes ago, Viking said:

Below is a chart updating Fairfax's top equity holdings to March 31, 2024. The total is about $19b. What stands out?

- Concentrated.

- International.

- Cyclical.

- Most holdings are well managed with solid prospects. That is a big, big change from what the portfolio looked like back in 2017. 6 years of hard work (fixing problems) and making good decisions (with new investments) is really starting to shine through. 

- Overall quality continues to improve. Higher quality means higher future earnings. We are seeing this show up in the different growing income streams at Fairfax. 

 

Total return of 15% = $2.85b. This looks attainable for Fairfax in 2024.

 

Please note, my definition of 'quality' is very loose: will the holding be able to deliver Fairfax a return of 15% per year? And lumpy is ok.

 

We know Fairfax's fixed income portfolio is locked and loaded for the next 4 years. If Fairfax's equity portfolio is able to start returning 15%... well guess what that means for Fairfax's total return on investments? Yes, a big number. 7.5% is probably a good base number to use for the next couple of years. 

 

Fairfax is also much more levered to investments (in terms of total earnings) than most P/C insurers. So earnings monster returns on its investment portfolio is a big deal.

 

@Viking, what are your thoughts on those private investments into ShawKwei, Grivalia and BDT and what do they say about Fairfax as a capital allocator? 

[Viking]

2 hours ago, Luca said:

@Viking, what are your thoughts on those private investments into ShawKwei, Grivalia and BDT and what do they say about Fairfax as a capital allocator? 

@Luca I like all three investments. See below for comments.

 

1.) BDT has been an outstanding long term investment for Fairfax. 

 

“We continue to invest with Byron Trott through various BDT Capital Funds. Since 2009, we have invested $978 million, have received $979 million in distributions and still have investments with a year-end market value of $683 million. Byron and his team have generated fantastic long-term returns for Fairfax, and we very much look forward to our continued partnership.”

 

2.) ShawKwei looks like it has been a solid long term performer. The fact Fairfax is adding new capital suggests they like the prospects. 

 

“Since 2008 we have invested with founder Kyle Shaw and his private equity firm ShawKwei & Partners. ShawKwei takes significant stakes in middle-market industrial, manufacturing and service companies across Asia, partnering with management to improve their businesses. We have invested $536 million in two funds (with a commitment to invest an additional $64 million), have received cash distributions of $217 million and have a remaining value of $504 million at year-end. The returns to date are primarily from our investment in the 2010 vintage fund, which, though decreasing 8.8% in value in 2023, has generated a 12% compound annual return since 2010. The 2017 vintage fund, which has drawn about 84% of committed capital to date, increased 23.1% in value in 2023 but has a compound annual return of 3.5% since inception. We expect Kyle to make higher returns on monetization of his major assets.”

 

2.) Grivalia Properties gets an incomplete from me today. It is a bet on the jockey play. George Chryssikos has had the Midas touch for Fairfax in Greece - making them +$1 billion so far. I am inclined to give Fairfax the benefit of the doubt on this one - my guess is it works out ok. We should know much more in 2024 as more resorts come on line.
 

“Grivalia Hospitality, under George Chryssikos, had a strong year of execution as two assets, including its largest, opened for business. The One & Only resort in Athens is a flagship in ultra-luxury hospitality and we are the proud owners. If you haven’t booked your summer vacation yet – you know what to do! 2024 will see one additional asset come into operation – which will take the operating portfolio to five. These include Amanzoe in Porto Heli, ON Residence in Thessaloniki, Avant Mar in Paros, One & Only and 91 Athens Riviera in Athens. Focus now turns to operational and service excellence for these resorts with Greece forecast to receive a record number of tourists in 2024. George has another five high end hotels in development over the next few years. George has an outstanding track record in real estate and as I said last year, he has already made us $1 billion! We expect George to repeat that accomplishment with Grivalia Hospitality over time! At year end we carried Grivalia at €513 million for our 85% stake.”

Edited April 3 by Viking

[glider3834]

58 minutes ago, Viking said:

@Luca I like all three investments. See below for comments.

 

1.) BDT has been an outstanding long term investment for Fairfax. 

 

“We continue to invest with Byron Trott through various BDT Capital Funds. Since 2009, we have invested $978 million, have received $979 million in distributions and still have investments with a year-end market value of $683 million. Byron and his team have generated fantastic long-term returns for Fairfax, and we very much look forward to our continued partnership.”

 

2.) ShawKwei looks like it has been a solid long term performer. The fact Fairfax is adding new capital suggests they like the prospects. 

 

“Since 2008 we have invested with founder Kyle Shaw and his private equity firm ShawKwei & Partners. ShawKwei takes significant stakes in middle-market industrial, manufacturing and service companies across Asia, partnering with management to improve their businesses. We have invested $536 million in two funds (with a commitment to invest an additional $64 million), have received cash distributions of $217 million and have a remaining value of $504 million at year-end. The returns to date are primarily from our investment in the 2010 vintage fund, which, though decreasing 8.8% in value in 2023, has generated a 12% compound annual return since 2010. The 2017 vintage fund, which has drawn about 84% of committed capital to date, increased 23.1% in value in 2023 but has a compound annual return of 3.5% since inception. We expect Kyle to make higher returns on monetization of his major assets.”

 

2.) Grivalia Properties gets an incomplete from me today. It is a bet on the jockey play. George Chryssikos has had the Midas touch for Fairfax in Greece - making them +$1 billion so far. I am inclined to give Fairfax the benefit of the doubt on this one - my guess is it works out ok. We should know much more in 2024 as more resorts come on line.
 

“Grivalia Hospitality, under George Chryssikos, had a strong year of execution as two assets, including its largest, opened for business. The One & Only resort in Athens is a flagship in ultra-luxury hospitality and we are the proud owners. If you haven’t booked your summer vacation yet – you know what to do! 2024 will see one additional asset come into operation – which will take the operating portfolio to five. These include Amanzoe in Porto Heli, ON Residence in Thessaloniki, Avant Mar in Paros, One & Only and 91 Athens Riviera in Athens. Focus now turns to operational and service excellence for these resorts with Greece forecast to receive a record number of tourists in 2024. George has another five high end hotels in development over the next few years. George has an outstanding track record in real estate and as I said last year, he has already made us $1 billion! We expect George to repeat that accomplishment with Grivalia Hospitality over time! At year end we carried Grivalia at €513 million for our 85% stake.”

For Grivalia there are clearly tailwinds in this luxury hotel traveller space in Greece so its a question of whether they can execute that to the bottom line  https://news.gtp.gr/2024/03/29/luxury-hotels-in-greece-see-revenues-rise-in-h2-2023/- their One & Only hotel I believe is the most expensive hotel on Athens riviera so they are catering to a very specific traveller niche https://greekcitytimes.com/2024/03/27/grivalia-hospitality-athens-riviera/

Edited April 3 by glider3834

[Dinar]

@Viking, I respectfully disagree.  The returns quoted for ShawKei do not seem to be that great giving liquidity and risk involved.  12% annual return given risks and leverage since 2010 is not great, 3.5% since 2017 is incredibly bad.

 

BDT is also unclear.  What has been the IRR on the capital committed vs alternatives (private equity, S&P, private credit, etc...).  Any investment made in 2009 should have doubled the money in a three year period, maximum 4.  

[Viking]

1 hour ago, Dinar said:

@Viking, I respectfully disagree.  The returns quoted for ShawKei do not seem to be that great giving liquidity and risk involved.  12% annual return given risks and leverage since 2010 is not great, 3.5% since 2017 is incredibly bad.

 

BDT is also unclear.  What has been the IRR on the capital committed vs alternatives (private equity, S&P, private credit, etc...).  Any investment made in 2009 should have doubled the money in a three year period, maximum 4.  

@Dinar I think the investments with ShawKwei and BDT are mostly private in nature - not mark to market. A fair bit of the value is likely surfaced over long periods of time as the assets are sold. 
 

“We expect Kyle to make higher returns on monetization of his major assets.”

 

Bottom line, my reference point is investments like Blackberry, Resolute Forest Products, Eurobank (the first purchase), Exco (before bankruptcy), Fairfax Africa, APR, AGT (before take private), Mosaic Capital, Farmers Edge, Astarta…
 

Compared the that gallows row of investments, BDT and ShawKwei look just fine to me. But each unto their own…

Edited April 4 by Viking

[nwoodman]

On 3/25/2024 at 6:56 PM, nwoodman said:

@This2ShallPass  I am hoping there a few questions asked about Atlas at the AGM. As referred to in an earlier post Graham Talbot the CFO departed after the last Fairfax AGM. It would be great to get some color around his leaving along with an overall update on their thinking in regard to this very large position.

 

https://www.linkedin.com/in/grahamstuarttalbot?utm_source=share&utm_campaign=share_via&utm_content=profile&utm_medium=ios_app

Just working my way thru the AGM transcript

 

I found it interesting that Sokol introduced Will Kostlivy as the CFO.  I wonder if that was news to Will.  Probably reading too much into it as I guess a lack of an acting CFO means automatically the gig is his until told otherwise

 

https://www.linkedin.com/in/william-kostlivy?utm_source=share&utm_campaign=share_via&utm_content=profile&utm_medium=ios_app

 

A good summary by Sokol, that has been well summarised by others

 

 

David Sokol

Thank you, Prem. It's a pleasure to be here. And as the other folks have commented, Fairfax is a phenomenal partner, and our whole team appreciates the relationship. Even when you have to work through difficult issues, they work through them professionally and you move on. Seaspan, essentially a shipping company, in '20 and '21, our management team, led by Bing Chen -- by the way, our CFO, Will Kostlivy, is here with me here today.

 

We recognized and particularly led by Bing and his development team that our customers needed refreshing of their vessels. And it was an interesting time because the market wasn't in great shape in '18 and '19, but with the new requirements for reduction of CO2, the age of the fleet that was out there, it became apparent that there was real opportunity, so working with the customers, we're building 70 new ships today. We've delivered 42. What I think is impressive about that for our team is that we designed these ships in cooperation with our customers, $8 billion construction program that we initiated in '20 and '21; simultaneously financed all the vessels to be coterminous with the long-term charters averaging 12 to 18 years. So we've delivered 42 of those ships.

 

Every one of them has been delivered early or on time, under budget. The management of the shipyards has been really something fun to watch. We'll deliver another 26 yet this year. And then 2 of that, the final 70, will be delivered in January of 2025, so the team has done a remarkable job. One of the really remarkable things that we didn't see coming is that those same ships today, because we locked in fixed pricing in 2020 and 2021, will be 30% more expensive.

 

So the ships we're delivering this year, if you wanted to duplicate them, a, it would take you 2 years, but also you'd pay a 30% premium. So we have a build-in margin that is purely good fortune from our perspective, but nonetheless, you take it when it comes along. So that's where we are. Now that's going to show some pretty dramatic improvement in economics this year. We'll probably see revenues up around 25%, EBITDA north of 35% and net income above 20% growth from '23 through '24, but that's just a function of these ships coming on.

 

They go on to charter immediately when they're delivered. We operate the ships. We do not take any fuel risk in the vessels. We just manage and operate the ships. And then we'll have another significant growth step in 2026 because the rest of those ships will be on for the full year entirely.

 

So we'll be at 196 ships operating for that we have in a partnership. And then we have 6 extremely large car-carrying vessels that we're under contract to build. They'll go into construction later this year, delivered in '26 and '27. And each of those will carry about 10,000 vehicles, so they're actually the largest car carriers ever constructed. So that's the business.

 

It will be a step function type of business. It's not one that our revenues -- we don't take short-term risk. Or we don't get the reward in the short-term markets. We do everything on a long-term basis, tie our financings to those charters, but it's a great business. And Prem, I'm pleased to say you're -- on the same basis that we went private, your investment should go up about 50% this year just based on the increased cash flow of the business, so it's been a pleasure.

 

And we -- hopefully, the market will keep providing us opportunity in the future. I would suggest that, the next 2 or 3 years, we're going to see fewer opportunities because the amount of newbuilding, including our own, of the last 2 years is adding 30% to the existing market. The market only grows about 2% a year in the container shipping business. And so there's going to be a huge amount of scrapping of older vessels, predominantly driven by fuel choice, but it's going to -- there's going to be a couple of years of digestion of that much; unfortunately, all of our contracts. And I should mention one of our things we focus on is contracted backlog.

 

And we have -- last year, we used up about $1.5 billion of our contracted backlog. We've already replaced it, so far, this year, so we have about $18 billion, a little over $18 billion of contracted backlog of operational revenue. So basically trying to keep 5 or 7 years constantly ahead of ourselves before we need to recontract anything.

 

Prem Watsa

 

David, thank you very much. $18 billion of contracted revenue, David said, and fixed-price financing. They make the spread. Ships have gone up by 30% from when they bought it. This is the type and very, very risk conscious, unbelievably risk conscious.