Fairfax stock positions

[73 Reds]

27 minutes ago, SafetyinNumbers said:

 

Is this because you think the forward expected return is less than 5% or you just don't like seeing Blackberry in the portfolio because it's obviously not material to forward returns?

 

Both, I suppose.  Even if Blackberry shares can earn a >5% annual return is it truly a better idea than any return generated by the tax loss and reallocation of net sales proceeds?  As a steward of capital, isn't that a more logical approach than holding shares in a company that you've called a terrible investment?  Despite its value now being a mere blip on the radar, it is certainly talked about and thought about disproportionate to all the company's success.  Anyone looking at the Fairfax portfolio and considering making an investment sees it for what it is.  

[SafetyinNumbers]

52 minutes ago, 73 Reds said:

Both, I suppose.  Even if Blackberry shares can earn a >5% annual return is it truly a better idea than any return generated by the tax loss and reallocation of net sales proceeds?  As a steward of capital, isn't that a more logical approach than holding shares in a company that you've called a terrible investment?  Despite its value now being a mere blip on the radar, it is certainly talked about and thought about disproportionate to all the company's success.  Anyone looking at the Fairfax portfolio and considering making an investment sees it for what it is.  

I don’t Fairfax is interested in hiding their mistakes like a lot of active

institutional money managers often do.

 

I have mistakes in my portfolio that I don’t sell because the expected return higher or because if I tried to sell, I wouldn’t actually get the price on the screen because I own too much.

 

You are right though that it might hurt the multiple but eventually I assume our shareholder base will be willing to afford the shares a higher multiple.

 

 

[73 Reds]

Yes, hiding a mistake is not appropriate but neither is perpetuating a mistake.  I really do think this gives pause to prospective new investors.  

[UK]

10 hours ago, Gautam Sahgal said:

Right now to me it looks like "quality" in the eyes of the team at Fairfax is determining who their entrepreneurial partner is (Sokol, Byron Trott, etc). Though I don't always understand it, I am A-OK with that. 

 

I do not think Buffett differs that much in this "right people/partner" approach? Personally I find this very important and after all years and some really unpleasant experience with all these "independant" boards or CEOs with a maximum of 3-5 year time frame, I am really hesitant to put much money into anything without right people / alligned owner etc. This is also probably the main reason of FFH succes and to invest in FFH in the first place, at least for me:). Many other cheaper/better/whatever insurance companies without owner operator I can trust? Thanks but no:)

 

Edited July 20, 2024 by UK

[SafetyinNumbers]

3 hours ago, 73 Reds said:

Yes, hiding a mistake is not appropriate but neither is perpetuating a mistake.  I really do think this gives pause to prospective new investors.  

I think you’re right but you are assuming that they are perpetuating a mistake. I assume they are trying to make the best capital allocation decision given the context (which we don’t fully know as outsiders). 

 

From my experience people who point to BlackBerry as a reason not to invest are just looking for an excuse. They really don’t want to invest ahead of the next mistake which may have already happened but it’s a position that investors generally like.

Kind of like the hedges until 2016. They were loved  (as expressed in the premium P/B multiple) back then but it was clearly a mistake with hindsight or maybe that’s just resulting.

 

[73 Reds]

7 minutes ago, SafetyinNumbers said:

I think you’re right but you are assuming that they are perpetuating a mistake. I assume they are trying to make the best capital allocation decision given the context (which we don’t fully know as outsiders). 

 

From my experience people who point to BlackBerry as a reason not to invest are just looking for an excuse. They really don’t want to invest ahead of the next mistake which may have already happened but it’s a position that investors generally like.

Kind of like the hedges until 2016. They were loved  (as expressed in the premium P/B multiple) back then but it was clearly a mistake with hindsight or maybe that’s just resulting.

 

Well, Prem Watsa acknowledged that Blackberry was a bad investment.  Is an admittted bad investment better than any (every!) other alternative?  Of course I've not always understood Buffett's reasoning either but there is always some inherent logic to what he does.  The only rationale that makes sense to me here is that the company is trying to discourage new buyers in order to keep the stock price down for as long as possible in order to repurchase more cheap shares.  If that is the intended goal, holding all remaining BB shares is a relatively cheap price to pay.

[rkbabang]

On 7/20/2024 at 1:40 PM, 73 Reds said:

Yes, hiding a mistake is not appropriate but neither is perpetuating a mistake.  I really do think this gives pause to prospective new investors.  

 

Exactly. And when it inevitably goes to zero and it will (I believe I said exactly this in 2010 somewhere on this board, I am quite surprised the company still exists to be honest), people will be wondering why they didn’t get over $100M for it when they still could. Sure it’s not a significant portion of their portfolio anymore, but it isn’t nothing. Selling it is a signal to new investors that they understand their mistakes and are unlikely to repeat them.

 

[nwoodman]

Eurobank hung onto its highs and closed as a $3bn+ position for Fairfax for the first time

 

3 coffees in and still can’t get my head  around  the purchase of ZZZ now.  Seems to me this should have been a blood in the streets acquisition if they were going to do it all.  The consolation is they are paying prices last seen 7 years ago. It should work out OK at this price but seems lower quality than what I would have hoped for given the deal size.

[Hoodlum]

44 minutes ago, nwoodman said:

Eurobank hung onto its highs and closed as a $3bn+ position for Fairfax for the first time

 

it looks like Eurobank is moving forward with Hellenic Bank, with or without the remaining shareholders.  The market still looks at this as a positive for Eurobank. 
 

https://knews.kathimerini.com.cy/en/news/fifteen-days-left-to-decide-on-eurobank-s-offer

[nwoodman]

Some more colour on Regulation 379/2014, I think this is what gives Eurobank the edge here as the possibility of delisting is highly likely:
 

Regulation 379/2014 of the Cyprus Securities and Exchange Commission specifies certain minimum share dispersal criteria for companies listed on the main market of the Cyprus Stock Exchange:

- At least 25% of the shares proposed for listing must be held by the wider public (free float requirement)
- The shares must be held by at least 300 natural persons or legal entities 

So this regulation aims to ensure a minimum level of diverse public ownership for companies listed on the CSE main market.
 

The 25% free float requirement prevents a small group of insiders from holding all or most of a publicly listed company's shares.

And the 300 person minimum helps ensure the shares are reasonably widely held rather than just technically meeting the 25% threshold among a very small number of public shareholders.

 

These provisions promote shareholder diversity and broader public participation in the ownership of listed companies on the Cyprus Stock Exchange main market. 
 

Key thresholds: 

Based on Cypriot corporate law, the following shareholder approval percentages are required for various corporate actions:

 

Ordinary Resolution (over 50% approval required):

- Appointment and removal of company directors 

- Alteration of the company's share capital (increase, consolidation, division, sub-division, cancellation, conversion of paid-up shares into stock)

- Appointment and removal of auditors

Special Resolution (at least 75% approval required): 

- Amendment of the memorandum of association

- Amendment of the articles of association 

- Change of company name

Reduction of share capital

- Variation of shareholders' rights (unless a higher threshold is specified in the articles of association)

Extraordinary General Meeting (EGM):

Shareholders holding at least 10% of the paid-up capital with voting rights can requisition the directors to convene an EGM. This right cannot be waived or varied by the articles of association.

So delisting is likely and Eurobank has the right to fire the existing board and put their own directors in.  I can’t find any further minority protections.  I guess they can argue oppression but that is difficult with takeover clearance given and other sophisticated investors already accepting lower bids.  @hoodlum as you say,  the market is giving developments the

 

 

 

[petec]

On 7/20/2024 at 3:35 AM, Parsad said:

Should be good for FFH's Poseidon investment renewals or new contracts.  Cheers!

 

Wow.

 

No direct benefit to Poseidon but their customers will be flush.

 

Might be a direct benefit to Brookfield, after their purchase of Triton - not sure how much of their containers are exposed to spot.

 

 

[Viking]

Stock of Quess, India’s leading business services provider and former high flyer, has recovered over past 2.5 years. Fairfax's stake is worth $435m. MV is once again greater than CV. Like when IIFL did it, Quess’ planned split into 3 companies in 2025 looks like a smart move.

 

Of interest:

• Quess is Fairfax's #12 largest equity holding.
• Quess' stock price was 855 rupee at Dec 31, 2021.

Edited July 26, 2024 by Viking

[glider3834]

One of Fairfax's most interesting positions, integrated energy utility and green metallurgy business Metlen (MYTIL.AT) (formerly Mytilineos) results out

 

https://www.ekathimerini.com/economy/1244896/metlen-registers-record-profits-in-january-june/

 

Edison have an analyst report on Metlen & below is a quote from this report with their take on valuation.

 

https://www.edisongroup.com/research/a-new-name-for-its-next-phase/33738/

 

'Valuation: Undervalued for a €1bn+ EBITDA business

Metlen currently trades at P/E multiples of 7.7x in FY24e and 7.2x in FY25e. It trades at EV/EBITDA ratios of 6.0x in FY24e and 5.6x in FY25e (our estimates are broadly in line with consensus), a significant discount to peers. As a comparison, its peer group trades at a range of multiples, from 5.2x for metals to 9.7x for RES, with an FY24 Metlen EBITDA-weighted average of 7.7x, a 38% premium to Metlen’s market multiple. In our view, Metlen’s multiple looks low for a business that has high-quality, low-cost assets in power generation and aluminium production, and very low for a company with a high-growth renewable energy business that accounts for almost one-third of its earnings. We value Metlen at €49/share (up from €45 in our last update). Our DCF valuation has risen to €47/share after incorporating recent results and some minor adjustments to earnings based on commodity, energy and electricity price assumptions, which are broadly in line with forward curves, and we now blend this with a peer multiple valuation of €51/share to reflect the potential of peer re-rating with an additional listing.'

 

 

[Gamma78]

"So much advantage in life comes from being willing to look foolish in the short term". 

 

Was thinking about this sentence tied to a lot of Fairfax's portfolio. 

Also, just a great blog: https://fs.blog/brain-food/august-14-2022/

[nwoodman]

Tidy set of  results out of Eurobank. MS upgraded their price target to €2.68 (+13.5%).  Or around $3.5bn+ in terms of Fairfax’s stake.
 

Note attached and summary as follows:

 

1. Eurobank beat estimates, with adjusted net income 16%/9% above Morgan Stanley/consensus estimates. NII and expenses both better than expected.

2. The bank raised guidance:
- FY24 ROATE to ~16.5% (from ~15% previously)
- Core operating profit to >€1.6bn (from >€1.5bn)
- NPE ratio lowered to ~3% (from <3.5%)

 

3. Key financial metrics:
- Net interest income: €561mn (-2% QoQ, +4% YoY)
- Net fee and commission income: €147mn (+8% QoQ, +4% YoY) 
- Operating expenses: €228mn (flat QoQ, +3% YoY)
- Provisions: €73mn (+2% QoQ, -18% YoY)
- Adjusted net profit: €349mn (-9% QoQ, +2% YoY)

 

4. Asset quality improved, with NPE ratio at 3.1% and coverage at 93.2%.

 

5. Capital position remains strong with CET1 ratio at 16.2%.

 

6. Performing loan growth accelerated to €0.8bn in Q2, driven by SEE operations and Greek corporate lending.

 

7. Eurobank completed acquisition of a 55.9% stake in Hellenic Bank.

Risks to Upside

- Faster-than-expected loan growth, driven by EU funds and macro recovery in Greece

- Higher-than-expected fee and commission income growth

- Stronger macro drives NPE levels below our expectations

 

Risks to Downside

- Early-stage recovery in macro environment is vulnerable to external shocks

- Absorption of EU funds is weaker than expected

 

EUROBANK_20240731_1544.pdf

[Viking]

33 minutes ago, nwoodman said:

Tidy set of  results out of Eurobank. MS upgraded their price target to €2.68 (+13.5%).  Or around $3.5bn+ in terms of Fairfax’s stake.
 

Note attached and summary as follows:

 

1. Eurobank beat estimates, with adjusted net income 16%/9% above Morgan Stanley/consensus estimates. NII and expenses both better than expected.

2. The bank raised guidance:
- FY24 ROATE to ~16.5% (from ~15% previously)
- Core operating profit to >€1.6bn (from >€1.5bn)
- NPE ratio lowered to ~3% (from <3.5%)

 

3. Key financial metrics:
- Net interest income: €561mn (-2% QoQ, +4% YoY)
- Net fee and commission income: €147mn (+8% QoQ, +4% YoY) 
- Operating expenses: €228mn (flat QoQ, +3% YoY)
- Provisions: €73mn (+2% QoQ, -18% YoY)
- Adjusted net profit: €349mn (-9% QoQ, +2% YoY)

 

4. Asset quality improved, with NPE ratio at 3.1% and coverage at 93.2%.

 

5. Capital position remains strong with CET1 ratio at 16.2%.

 

6. Performing loan growth accelerated to €0.8bn in Q2, driven by SEE operations and Greek corporate lending.

 

7. Eurobank completed acquisition of a 55.9% stake in Hellenic Bank.

Risks to Upside

- Faster-than-expected loan growth, driven by EU funds and macro recovery in Greece

- Higher-than-expected fee and commission income growth

- Stronger macro drives NPE levels below our expectations

 

Risks to Downside

- Early-stage recovery in macro environment is vulnerable to external shocks

- Absorption of EU funds is weaker than expected

 

EUROBANK_20240731_1544.pdf 234.17 kB · 1 download

 

@nwoodman thanks for sharing. The management team at Eurobank continues to underpromise and overdeliver. As you pointed out they raised full year guidance initially provided in March. The updated guidance is below.

• https://www.eurobankholdings.gr/-/media/holding/omilos/grafeio-tupou/etairikes-anakoinoseis/2024/2q2024/2q2024-results-presentation.pdf

 

Edited July 31, 2024 by Viking

[Haryana]

On 7/26/2024 at 11:23 AM, Viking said:

Stock of Quess, India’s leading business services provider and former high flyer, has recovered over past 2.5 years. Fairfax's stake is worth $435m. MV is once again greater than CV. Like when IIFL did it, Quess’ planned split into 3 companies in 2025 looks like a smart move.

 

Of interest:

• Quess is Fairfax's #12 largest equity holding.
• Quess' stock price was 855 rupee at Dec 31, 2021.

 

The latest surge came along with the recent India budget that placed focus on youth training and employment.

https://www.screener.in/company/QUESS/consolidated/

[gfp]

Atlas / Poseidon quarterly report for those interested -

https://www.sec.gov/Archives/edgar/data/1794846/000162828024036286/atlascorpq220246-k.htm

[SafetyinNumbers]

2 hours ago, gfp said:

Atlas / Poseidon quarterly report for those interested -

https://www.sec.gov/Archives/edgar/data/1794846/000162828024036286/atlascorpq220246-k.htm

Between EUROB and Poseidon it looks like Assoicates income should be strong again in Q3 (FFH reports on a quarter lag).

[glider3834]

6 hours ago, SafetyinNumbers said:

Between EUROB and Poseidon it looks like Assoicates income should be strong again in Q3 (FFH reports on a quarter lag).

- unfortunately there is a paywall 

https://www.tradewindsnews.com/containers/seaspan-orders-27-container-ships-in-major-multi-billion-return-to-newbuilding-arena/2-1-1690516

[glider3834]

5 minutes ago, glider3834 said:

- unfortunately there is a paywall 

https://www.tradewindsnews.com/containers/seaspan-orders-27-container-ships-in-major-multi-billion-return-to-newbuilding-arena/2-1-1690516

https://www.sec.gov/Archives/edgar/data/1794846/000162828024036286/atlascorpq220246-k.htm

'In June 2024, the Company entered into shipbuilding contracts for the construction of 27 newbuild containership vessels, ranging between 9,000 and 17,000 TEU. Four of these contracts were immediately novated to a customer. 13 of these contracts were thereafter novated to certain nominees and upon delivery, these 13 newbuilds will be chartered by the Company from such nominees under bareboat charters. The vessels will be delivered between 2027 through 2028 and each vessel will commence a long term charter upon delivery.'

[nwoodman]

9 hours ago, gfp said:

Atlas / Poseidon quarterly report for those interested -

https://www.sec.gov/Archives/edgar/data/1794846/000162828024036286/atlascorpq220246-k.htm

For those playing along at home

 

 

1. Ship Operating Expenses: Increased from $96.0 million in Q1 to $114.9 million in Q2, reflecting a 19.7% increase. This rise can be attributed to the growth in the fleet of operating vessels.

2. Depreciation and Amortization: Increased from $112.3 million in Q1 to $131.1 million in Q2, a 16.8% increase. This is primarily due to the continued expansion of the fleet and the reclassification of certain leases from operating to financing.

 

3. General and Administrative Expenses: Increased from $13.3 million in Q1 to $19.8 million in Q2, reflecting a 48.9% increase. The Q2 increase can be partially attributed to a gain recognized in the current period related to the settlement of a contingent consideration asset.

 

4. Operating Lease Expenses: Decreased from $22.7 million in Q1 to $14.1 million in Q2, a 37.9% decrease. This reduction is mainly due to the reclassification of certain leases from operating to financing as a result of purchase options being exercised for several vessels.

 

5. Interest Expense: Increased from $129.1 million in Q1 to $153.1 million in Q2, reflecting an 18.6% increase. This increase is driven by an increase in outstanding debt and other financing balances, as well as an increase in benchmark rates on these financings    .

Edited August 9, 2024 by nwoodman

[Viking]

20 minutes ago, glider3834 said:

https://www.sec.gov/Archives/edgar/data/1794846/000162828024036286/atlascorpq220246-k.htm

'In June 2024, the Company entered into shipbuilding contracts for the construction of 27 newbuild containership vessels, ranging between 9,000 and 17,000 TEU. Four of these contracts were immediately novated to a customer. 13 of these contracts were thereafter novated to certain nominees and upon delivery, these 13 newbuilds will be chartered by the Company from such nominees under bareboat charters. The vessels will be delivered between 2027 through 2028 and each vessel will commence a long term charter upon delivery.'

 

Interesting. With the former rapid new-build growth phase coming to an end I was wondering what the next act was for Atlas/Sokol. But given the size of the company today, 27 new builds is not a crazy big number, especially looking out a few years. The delivery dates are out a fair bit at 2027 and 2028. Chug, chug, chug...

 

It will be interesting to see where interest rates go from here. If they continue lower Atlas could be a beneficiary - they may be able to secure some reasonable long term rates. 

[nwoodman]

6 hours ago, Viking said:

 

Interesting. With the former rapid new-build growth phase coming to an end I was wondering what the next act was for Atlas/Sokol. But given the size of the company today, 27 new builds is not a crazy big number, especially looking out a few years. The delivery dates are out a fair bit at 2027 and 2028. Chug, chug, chug...

 

It will be interesting to see where interest rates go from here. If they continue lower Atlas could be a beneficiary - they may be able to secure some reasonable long term rates. 

Quite the lollapalooza if they get a credit re-rating in conjunction with a drop in rates.   As it is,  they look like they will blow past the FY profit forecast of $400m that Prem mentioned in the 2023 annual,  next quarter, even without a drop in rates.   Now that is truly managing expectations     

 

Using Seaspan's last public share count: The last reported number of outstanding shares for Seaspan before going private was approximately 249.2 million shares. Forecasted annual earnings (based on Fairfax's projection for Poseidon): $400 million Theoretical EPS = $400 million / 249.2 million = $1.60 per share.  This is the number that Wade was referring to in the CC.  If we take the run rate to date for the first 6 months $321m and double it for the remaining 6 months that would give an annualised profit of $641.8m or $2.58 per share.  Perhaps there is revenue/expense mismatching going in the quarter or costs associated with bring new vessels on.  It will be fascinating to see next quarter's results.

Edited August 10, 2024 by nwoodman

[Viking]

12 hours ago, nwoodman said:

Quite the lollapalooza if they get a credit re-rating in conjunction with a drop in rates.   As it is,  they look like they will blow past the FY profit forecast of $400m that Prem mentioned in the 2023 annual,  next quarter, even without a drop in rates.   Now that is truly managing expectations     

 

Using Seaspan's last public share count: The last reported number of outstanding shares for Seaspan before going private was approximately 249.2 million shares. Forecasted annual earnings (based on Fairfax's projection for Poseidon): $400 million Theoretical EPS = $400 million / 249.2 million = $1.60 per share.  This is the number that Wade was referring to in the CC.  If we take the run rate to date for the first 6 months $321m and double it for the remaining 6 months that would give an annualised profit of $641.8m or $2.58 per share.  Perhaps there is revenue/expense mismatching going in the quarter or costs associated with bring new vessels on.  It will be fascinating to see next quarter's results.

 

@nwoodman thanks for pointing out the obvious to me... I did not realize Poseidon's earnings were tracking that high. At Fairfax's AGM in April, Sokol was sounding very optimistic about Poseidon'e near term prospects (earnings growth next couple of years)... looks like things are playing out as he expected.

 

If Poseidon is able to earn $640 million per year, that would put Fairfax's share at about $277 million (43.3% ownership).

 

For Poseidon, at June 30, 2024, Fairfax had a carrying value of $1.78 billion (and a fair value of $2.05 billion). 

 

Earnings yield on carrying value is 15.6% ($277 / $1.78). That is a pretty good return for a pretty stable leasing business kind of masquerading as a container shipping company.

 

I think it might be time to do an update on Poseidon  My guess is Fairfax's stake in Poseidon is worth much more than its carrying value of $1.78b. Just another example of Fairfax's book value being understated. Fairfax knows this - and this likely explains why they continue to buy back a significant amount of Fairfax shares at a premium to book value. Investors are likely underestimating how much 'hidden value' actually exists on Fairfax's balance sheet today. 

Edited August 10, 2024 by Viking