Txvestor Posted March 31, 2025 Posted March 31, 2025 On 3/21/2025 at 9:35 PM, nwoodman said: Achieving investment grade for Atlas will be an important development especially if we are H4L. Not 100% sure of the criteria but it may look something like this: Likely a ‘26 or ‘27 development but Atlas is still on a credible path. A little worried about the Trump proposal for heavy docking fees per Chinese manufactured ship, in order to bring back US shipbuilding. Anyone know where Atlas' fleet was manufactured?
nwoodman Posted March 31, 2025 Posted March 31, 2025 (edited) 1 hour ago, Txvestor said: A little worried about the Trump proposal for heavy docking fees per Chinese manufactured ship, in order to bring back US shipbuilding. Anyone know where Atlas' fleet was manufactured? Indeed, they had this to say in their recent 20F “Following its investigation of the maritime, logistics and shipbuilding industry in China, the U.S. Trade Representative has proposed charging service fees under Section 301 of the U.S. Trade Act of 1974 for docking of vessels made in China and vessels owned by companies that operate vessels made in China or are manufacturing newbuild vessels in China, if such fees are implemented, the resulting service fee regime could have an effect on our financial condition and result of operations. On March 12, 2024, certain parties filed a petition under Section 301 of the U.S. Trade Act of 1974 (“Section 301”) regarding the acts, policies, and practices of China to dominate the maritime, logistics, and shipbuilding sector. On April 17, 2024, after the U.S. Trade Representative (“USTR”) initiated an investigation of China’s targeting the maritime, logistics, and shipbuilding sectors for dominance. Following the investigation, on January 23, 2025, the USTR reported its determination that China’s targeting of the maritime, logistics, and shipbuilding sectors for dominance is unreasonable and burdens and restricts U.S. commerce and thus is actionable. On February 21, 2025, the USTR issued a notice of proposed action under Section 301, which provides, among other things, for significant service fees for Chinese-built vessels and for companies that operate Chinese-built vessels or have contracted to build vessels in China. The proposed action is subject to a period of public comment and public hearings before it is implemented. It is unclear from the USTR’s February 21, 2025 notice how the proposed service fees will be levied and which party involved in the operation of a Chinese-built vessel will be required to pay the fees. We are closely monitoring the proposed action and assessing its potential impact on the Company in light of the fact that 88 of our time-chartered vessels were built in China and that we have orders for 36 vessels from Chinese manufacturers.” Some further notes: ”Seaspan may face significant challenges with the proposed Trump administration taxes on Chinese-built ships. The plan to impose fees of up to $1.5 million per U.S. port call for Chinese-built vessels could make U.S. port calls too expensive for some operators, potentially leading to rerouting of cargo through Canada or Mexico. Seaspan, which has ordered ships from Chinese shipyards like Hudong-Zhonghua, is closely monitoring these developments. The increased costs could impact Seaspan’s operational efficiency and profitability, as they might need to adjust their shipping routes or absorb the additional fees.” “The exact percentage of the global fleet that is Chinese-made is not specified in a single figure across all types of ships. However, Chinese shipyards have a significant presence in various sectors: -Cargo Ships: Chinese yards account for 47% of cargo ships above 10,000 DWT. -Tankers: They make up 24% of the global tanker fleet. -Container Ships: Chinese-built vessels comprise a substantial portion, with companies like MSC having 24% of their fleet as Chinese-made, and Maersk having 20%. -Bulk Carriers: Chinese vessels account for 75% of the bulk carrier fleet” https://www.reuters.com/markets/trumps-fees-chinese-ships-will-hurt-us-companies-maritime-executives-tell-2025-03-24/?utm_source=perplexity Edited March 31, 2025 by nwoodman
Hoodlum Posted March 31, 2025 Posted March 31, 2025 Waterous closed another $1.4B round capital for their private equity fund. I wonder if Fairfax added to their stake in Waterous as it has been successful so far. Hopefully, this gift link will work for a while. https://www.theglobeandmail.com/gift/88b464f77c2863c66a9326ee3eb93664ae337885ca5483f02881b645ad033c36/YHL34SAZVFGSXF5BKVUYCLLJLY/ Comments from the latest Fairfax Shareholders Letter regarding Waterous. We met Adam Waterous and the team at Waterous Energy Fund (“WEF”) in 2018. After a storied 27-year career in energy in Calgary, Adam was raising money for a fund to invest in and consolidate sub-scale, long life oil and gas businesses and assets in Canada. We were impressed by Adam’s focus on long term returns on capital. The WEF team had extensive experience in investing in oil and gas and Adam had built Waterous & Co, starting in 1991, into the largest oil and gas M&A firm in the world before selling it to Scotiabank in 2005. We invested $129 million which is currently valued at approximately $290 million through a stake in publicly traded Strathcona Resources. WEF built this company from scratch over 7 years into Canada’s 5th largest oil company producing close to 200,000 barrels per day of long life, low cost, very profitable oil. We then committed another $750 million to WEF’s next fund. The WEF team has already deployed a total from the fund of $323 million for a controlling stake in Greenfire Resources, a publicly traded oil company located in the Athabasca region of Canada. WEF’s latest investment is another business with long life (even longer than Strathcona!), low decline assets producing approximately 20,000 barrels per day that is Canada’s 11th largest oil company by proved plus probable reserves. In every respect, Adam has proven an outstanding Fairfax partner
nwoodman Posted March 31, 2025 Posted March 31, 2025 15 minutes ago, Hoodlum said: Waterous closed another $1.4B round capital for their private equity fund. I wonder if Fairfax added to their stake in Waterous as it has been successful so far. Hopefully, this gift link will work for a while. Thanks, fingers crossed they did. Given the volatility and uncertainty it’s a good time for patient long term capital to be consolidating these types of assets. I liked his analogy too: “WEF is acquiring oil sands properties at a time when foreign energy companies continue to exit the region and smaller private players are selling rather than trying to raise the money needed to build a producing property. The dominant oil sands companies, including Canadian Natural Resources Ltd. , Cenovus and Suncor, are also bulking up. “If we were real estate investors, we would be the folks who buy one house in a great neighbourhood full of elderly homeowners, then keep buying great houses as they come to market,” said Mr. Waterous, managing partner and chief executive officer at WEF, in an interview.” Energy investor Waterous closes $1.4-billion oil and gas fund - The Globe and Ma.pdf
Viking Posted March 31, 2025 Posted March 31, 2025 AGT is a sleep holding for Fairfax. For some reason it is not included in the table of equity holdings that Fairfax provides each year in Prem's letter (with a stated carrying value). Instead we get this: "Fairfax’s 66% stake in AGT is currently carried at an enterprise-to-EBITDA ratio of 6x." Prem Watsa - Fairfax 2024AR I have tried to come up with a carrying value for AGT at December 31, 2023. Does my math look roughly right? My $500 million estimate for Fairfax is for 'enterprise value' - this includes both equity and debt. And my guess is AGT has a bunch of debt (legacy + take private + growth of business). But it appears that debt came down significantly in Q1, 2025 with AGT's sale of their rail and infrastructure assets for C$192 million. Bottom line, EBITDA has been growing nicely at AGT over the past 5 years. And now total debt has come down significantly in Q1, 2025. Both are positive developments. Comments from Prem about AGT from Fairfax’s 2024AR. AGT, run by CEO Murad Al-Katib with his Executive Chairman Huseyin Arslan, had another strong year in 2024, with EBITDA of approximately Cdn$180 million (up from Cdn$65 million at the time of the take private transaction in 2019). The company has successfully transformed the business over the past several years. It has a vertically integrated supply chain with a growing higher-margin Packaged Foods business and customer base. In early 2025, AGT completed another important step in their transformation by selling its Canadian rail and infrastructure assets for proceeds of Cdn$192 million. The deal provides AGT with the use of the rail assets under a long-term supply agreement. The sale proceeds will be used primarily for debt reduction and optimization of the company’s capital structure. These developments have led to stronger free cash flow and value creation. AGT’s global pulse sourcing and processing capability is also expected to become increasingly valuable as the total addressable market for plant-based protein expands. Fairfax’s 66% stake in AGT is currently carried at an enterprise-to-EBITDA ratio of 6x. Prem Watsa – Fairfax 2024AR
SafetyinNumbers Posted March 31, 2025 Posted March 31, 2025 57 minutes ago, Viking said: AGT is a sleep holding for Fairfax. For some reason it is not included in the table of equity holdings that Fairfax provides each year in Prem's letter (with a stated carrying value). Instead we get this: "Fairfax’s 66% stake in AGT is currently carried at an enterprise-to-EBITDA ratio of 6x." Prem Watsa - Fairfax 2024AR I have tried to come up with a carrying value for AGT at December 31, 2023. Does my math look roughly right? We know the debt at AGT at year end so I think we need to reduce $756m carrying value by $467.5m and then calculate the value of FFH’s equity. At 66%, I think that’s ~$190m. Seem like it’s another undervalued equity position in an equity portfolio that is the reason most investors avoid Fairfax.
Santayana Posted March 31, 2025 Posted March 31, 2025 The debt level should be lower than it was at year end after the $192M sale though, correct?
SafetyinNumbers Posted March 31, 2025 Posted March 31, 2025 (edited) 2 hours ago, Santayana said: The debt level should be lower than it was at year end after the $192M sale though, correct? Seems that way. So it’s even cheaper than it was before. Low margin business though. Edited March 31, 2025 by SafetyinNumbers
glider3834 Posted April 1, 2025 Posted April 1, 2025 Exco Resources - based on Chou Funds calculation of PV-10 value (below) you can see it increased modestly from June 2023 to June 2024, but you can see the impact of share buybacks with PV-10 per share increasing around 20% over same period as the outstanding share count dropped around 10% (below). Fairfax's ownership has increased from 44%(AR2022) to 49% (AR2024) https://www.choufunds.com/pdf/2024 AR English.pdf https://www.choufunds.com/pdf/2023 AR English.pdf
nwoodman Posted April 1, 2025 Posted April 1, 2025 3 hours ago, glider3834 said: Exco Resources - based on Chou Funds calculation of PV-10 value (below) you can see it increased modestly from June 2023 to June 2024, but you can see the impact of share buybacks with PV-10 per share increasing around 20% over same period as the outstanding share count dropped around 10% (below). Fairfax's ownership has increased from 44%(AR2022) to 49% (AR2024) https://www.choufunds.com/pdf/2024 AR English.pdf https://www.choufunds.com/pdf/2023 AR English.pdf Thanks for this, EXCO continues to be a bit of black box to me. Looks like it is heading in the right direction
Viking Posted April 1, 2025 Posted April 1, 2025 (edited) Estimate of change in MV of Fairfax’s equity portfolio in Q1, 2025 A warning. When looking at Fairfax’s equity holdings, what matters to investors is the underlying business performance achieved by the holdings over time. Not the quarterly change in market value. Short term (quarterly) changes in market value are driven by Mr. Market, who as we all know is a manic depressive. As a result, short term (quarterly) changes in market value should be viewed with an appropriate amount of scepticism by investors. So why track quarterly changes? Because it is interesting. And it can provide some insight into one of Fairfax’s large income streams - investment gains (losses) - prior to the release of quarterly earnings. Importantly, over time (like a couple of years), the change in the market value of Fairfax’s equity holdings should roughly match the change in intrinsic business value. ----------- In Q1, 2025, Fairfax’s equity portfolio (the holdings that I track) increased in market value by about $785 million (pre-tax), or 3.5%. This is a solid return given the global correction in stocks in Q1. The equity portfolio had a total value of about $23.2 billion at March 31, 2025. Included in our estimates are details from Fairfax’s Q4-2024-13F and 2024AR. Notes: The FFH-TRS position is included in the mark to market bucket and at its notional value (with a market value of $2.55 billion). Convertible bonds, warrants and debentures are also included in the mark to market bucket. The ‘tracker portfolio’ is not an exact match to Fairfax’s actual holdings. It is useful only as a tool to understand the rough change in value of Fairfax’s equity portfolio (and not the precise change). Split of holdings by accounting treatment About 49% of Fairfax’s equity holdings are mark to market - and will fluctuate each quarter with changes in equity markets. The other 51% are Associates and Consolidated holdings. Split of total gains by accounting treatment The total change is an increase of about $785 million = $36/share (pre-tax) The mark to market change is an increase of about $512 million = $23.60/share. What were the big movers in the equity portfolio in Q1, 2025? The usual suspects continue to perform very well - Eurobank and FFH-TRS. The big surprise was Orla, which increased in value by $343 million (including convertible bonds and warrants), driven by the spike in the price of gold. CVS, added in Q4, 2024, was up significantly. Stocks in India have been in a bear market to start 2025 – Thomas Cook India was down $216 million. Excess of fair value over carrying value For associate and consolidated holdings, the excess of fair value to carrying value is about $1.8 billion pre-tax ($83/share). The 'excess of FV to CV’ has been materially increasing in recent years. This is economic value that has been created by Fairfax that is not captured in book value – it is a good example of how book value is understated at Fairfax. (Note, the carrying value we use in our tracker for associate and consolidated holdings is from December 31, 2024). Excess of FV over CV = $1.8 billion = $83/share (pre-tax) Associates = $1,241million Consolidated = $562 million Equity Tracker Spreadsheet explained: We have separated holdings by accounting treatment: Mark to market Associates – equity accounted Consolidated Other Holdings – total return swaps and warrants/debentures The value of each holding is calculated by multiplying the share price by the number of shares. All holdings are tracked in US$, so non-US holdings have their values adjusted for currency. This spreadsheet contains errors. It also contains some information that is dated (like the carrying value for associate and consolidated holdings). Please keep this in mind. The spreadsheet is updated as new information becomes available. Edited April 1, 2025 by Viking
nwoodman Posted April 1, 2025 Posted April 1, 2025 (edited) @Viking thanks as always. While minor in comparison to Orla, in terms of timing, that CVS purchase was stellar. Turns out CVS was one of the top, if not the top performer in the S&P500 for the quarter. I think it’s also notable what they sold in Q4 as well. Even the “but they bought BlackBerry” crowd would have to confess the Q1 results were a lesson in “seeking alpha”. Some notes on CVS: • Leadership Transformation: New CEO David Joyner (appointed October 2024) implemented effective turnaround strategies focusing on operational improvements • Exceptional Earnings Performance: Q4 2024 results substantially exceeded analyst expectations with EPS beating forecasts by 34% • Medicare Advantage Optimization: Strategic benefit adjustments and improved star ratings enhanced profitability in the health insurance segment • Digital Innovation: Launch of redesigned AI-powered app serving 60 million digital customers improved customer experience • Cost Rationalization: Closure of underperforming retail locations and implementation of efficiency measures strengthened margins • Analyst Confidence: Multiple Wall Street upgrades with 18 of 21 analysts giving buy ratings and significant price target increases • Reduced Short Interest: Declining short positions signaled growing investor confidence in the company’s recovery • Favorable Sector Dynamics: Healthcare emerged as 2025’s strongest performing sector, providing additional tailwinds for CVS Edited April 1, 2025 by nwoodman
gfp Posted April 1, 2025 Posted April 1, 2025 Great posts everybody. Imagine if it comes out they also sold out of Blackberry in Q1..
villainx Posted April 1, 2025 Posted April 1, 2025 49 minutes ago, nwoodman said: While minor in comparison to Orla, in terms of timing, that CVS purchase was stellar. Turns out CVS was one of the top, if not the top performer in the S&P500 for the quarter. Forgot about this. Was this discussed in letter?
Viking Posted April 1, 2025 Posted April 1, 2025 11 minutes ago, villainx said: Forgot about this. Was this discussed in letter? CVS was disclosed as a new position in the Q4, 2024 13F report. https://13f.info/13f/000110465925013269-fairfax-financial-holdings-ltd-can-q4-2024
Hsmpanl Posted April 1, 2025 Posted April 1, 2025 1 hour ago, nwoodman said: @Viking thanks as always. While minor in comparison to Orla, in terms of timing, that CVS purchase was stellar. Turns out CVS was one of the top, if not the top performer in the S&P500 for the quarter. I think it’s also notable what they sold in Q4 as well. Even the “but they bought BlackBerry” crowd would have to confess the Q1 results were a lesson in “seeking alpha”. Some notes on CVS: • Leadership Transformation: New CEO David Joyner (appointed October 2024) implemented effective turnaround strategies focusing on operational improvements • Exceptional Earnings Performance: Q4 2024 results substantially exceeded analyst expectations with EPS beating forecasts by 34% • Medicare Advantage Optimization: Strategic benefit adjustments and improved star ratings enhanced profitability in the health insurance segment • Digital Innovation: Launch of redesigned AI-powered app serving 60 million digital customers improved customer experience • Cost Rationalization: Closure of underperforming retail locations and implementation of efficiency measures strengthened margins • Analyst Confidence: Multiple Wall Street upgrades with 18 of 21 analysts giving buy ratings and significant price target increases • Reduced Short Interest: Declining short positions signaled growing investor confidence in the company’s recovery • Favorable Sector Dynamics: Healthcare emerged as 2025’s strongest performing sector, providing additional tailwinds for CVS 1 hour ago, nwoodman said: @Viking thanks as always. While minor in comparison to Orla, in terms of timing, that CVS purchase was stellar. Turns out CVS was one of the top, if not the top performer in the S&P500 for the quarter. I think it’s also notable what they sold in Q4 as well. Even the “but they bought BlackBerry” crowd would have to confess the Q1 results were a lesson in “seeking alpha”. Some notes on CVS: • Leadership Transformation: New CEO David Joyner (appointed October 2024) implemented effective turnaround strategies focusing on operational improvements • Exceptional Earnings Performance: Q4 2024 results substantially exceeded analyst expectations with EPS beating forecasts by 34% • Medicare Advantage Optimization: Strategic benefit adjustments and improved star ratings enhanced profitability in the health insurance segment • Digital Innovation: Launch of redesigned AI-powered app serving 60 million digital customers improved customer experience • Cost Rationalization: Closure of underperforming retail locations and implementation of efficiency measures strengthened margins • Analyst Confidence: Multiple Wall Street upgrades with 18 of 21 analysts giving buy ratings and significant price target increases • Reduced Short Interest: Declining short positions signaled growing investor confidence in the company’s recovery • Favorable Sector Dynamics: Healthcare emerged as 2025’s strongest performing sector, providing additional tailwinds for CVS I’d be careful on this one with CVS. I own the stock but I think it’s more a function of how cheap it was in 2024 and the wheels simply not falling off. The company still has a long way to go to justify anything >$70 per share and has yet to show they can reliably execute. Plenty of potential in the franchise assets but I wouldn’t want Prem making this a significant holding at these prices.
nwoodman Posted April 1, 2025 Posted April 1, 2025 4 hours ago, Hsmpanl said: I’d be careful on this one with CVS. I own the stock but I think it’s more a function of how cheap it was in 2024 and the wheels simply not falling off. The company still has a long way to go to justify anything >$70 per share and has yet to show they can reliably execute. Plenty of potential in the franchise assets but I wouldn’t want Prem making this a significant holding at these prices. Fair point, I don’t follow CVS so those notes were more about my lack of familiarity and a first cut on what the catalysts were over the last 6 months. Agree $70 appears to be consensus. More broadly it was also an observation on how their equity capital allocation is functioning. For me this is kind of the last shoe to drop. Insurance-tick, bonds-tick, equities-tick. Going one step further, equity allocation is also about an opportunity set that is in their wheelhouse. So in an overvalued market, the fact that they are finding ideas that are paying up so quickly is very heartening.
Hsmpanl Posted April 1, 2025 Posted April 1, 2025 5 minutes ago, nwoodman said: Fair point, I don’t follow CVS so those notes were more about my lack of familiarity and a first cut on what the catalysts were over the last 6 months. Agree $70 appears to be consensus. More broadly it was also an observation on how their equity capital allocation is functioning. For me this is kind of the last shoe to drop. Insurance-tick, bonds-tick, equities-tick. Going one step further, equity allocation is also about an opportunity set that is in their wheelhouse. So in an overvalued market, the fact that they are finding ideas that are paying up so quickly is very heartening. Completely agree with this, they've always had a differentiated approach to the equity portfolio and it seems they are getting it right during this cycle. I have a lot of confidence in Fairfax equity portfolio's ability to perform well in a downturn, and if they can maintain solid underwriting results then we should be in for significant growth in intrinsic value over the next 5 years.
Viking Posted April 1, 2025 Posted April 1, 2025 28 minutes ago, Hsmpanl said: Completely agree with this, they've always had a differentiated approach to the equity portfolio and it seems they are getting it right during this cycle. I have a lot of confidence in Fairfax equity portfolio's ability to perform well in a downturn, and if they can maintain solid underwriting results then we should be in for significant growth in intrinsic value over the next 5 years. I agree. What is interesting is what they did during the last 2 bear markets in equities (2020 and 2022): Used it as a catalyst to fix some underperforming equities. Like Thomas Cook India (forced to restructure as part of the cash injection they gave the company). Bought much more of the companies they already owned - at very attractive prices. Fairfax just didn't 'ride it out.' They supplied some 'tough love.' And bought on the cheap. This improved both the quality of the company and its fundamentals. (Capital allocation 101.) Welcome to 'new Fairfax.'
gfp Posted April 2, 2025 Posted April 2, 2025 15 hours ago, Haryana said: About 2.7mm shares bought at $45 which is now $68 implying a gain of $62mm. How are you assuming a $45 cost basis? The CVS shares inside odyssey re have a $53.72 / share cost basis
Viking Posted April 2, 2025 Posted April 2, 2025 (edited) Equity Holdings – Size Ranking at March 31, 2025 In this post we provide a list of Fairfax’s 30 largest equity holdings. To value a holding, we normally use current market value, which is the stock price at March 31, 2025, multiplied by the number of shares that Fairfax owns. For private holdings we use Fairfax’s latest reported market/carrying value (December 31, 2024). The FFH-TRS position is included at its notional value. For Orla and Metlen, the share count includes convertible bonds/warrants What holdings are missing from my list below? Private holding, AGT Foods and Ingredients, is one that come to mind (MV = $150 million?). Ok, let’s get to the fun part of this post. What can we learn from looking at a list of Fairfax’s largest equity holdings? 1.) Fairfax has a pretty concentrated portfolio The top 3 holdings make up 33% of the total. The top 10 holdings make up 55% of the total. 2.) Mr. Market probably dislikes (hates?) a lot of the stocks that are on this list A Greek bank? What is a P/C insurance company doing buying a total return swap on its own shares? A containership company? Significant investments in an emerging market like India? Greece? Significant investments in resource / commodity producers? I could go on. But here is the key point. Ask Mr. Market (the detractors) if they actually follow any of Fairfax’s 10 largest holdings. My guess is they don’t. I love it when people have strong opinions about something they know nothing about. That Greek bank has increased in market value by $2 billion over the past 4 years (2020 to 2024). It is up another $428 million in Q1, 2025. That TRS has increased in market value by $2 billion over the past 4 years (2020 to 2024). It is up another $102 million in Q1, 2025. That shipping container company just completed a massive new-built expansion program - cost to build today has shot up 30% (from what they recently paid). Through Fairfax India, they now own 69% of Bangalore International Airport (BIAL) the 3rd largest and fastest growing airport in India. The largest commodity holding, Orla (a gold producer), is up $343 million in Q1, 2025. Another of their commodity holdings, Stelco, was sold in Q4, 2024. Over its 6-year holding period, this investment delivered a total return of $568 million (CAGR of 25.5%). Bottom line, Fairfax’s equity holdings have been performing exceptionally well in recent years. 3.) Fairfax is not Berkshire Hathaway Over the past 59 years, Warren Buffett / Berkshire Hathaway has been the GOAT. As a result, P/C insurance companies (that invest in equities) today are evaluated by how much they clone Warren Buffett. Of course, there will only ever be one Warren Buffett - and he can’t be cloned (no matter how hard Tom Gaynor at Markel might try). Here is the really interesting point. Warren Buffett/Berkshire Hathaway is not the only person/company to build great wealth by exploiting the P/C insurance business model. I know this might sound like heresy to all of those investors who worship at the altar of Warren Buffett. Here are a few other individuals/companies that have built great wealth for themselves and their shareholders over decades (my list is not comprehensive… there are more): Shelby Davis Peter B Lewis / Progressive Hank Greenberg / AIG Tisch family / Lowes Bill Berkley / WR Berkley Markel family / Markel Prem Watsa / Fairfax Financial The important point is they all did it in very different ways - there is no one/right way. Companies should be evaluated on their own merits (management, fundamentals, results and prospects). Not by how well they are cloning Buffett. So, if you look at Fairfax’s top equity holdings and you hear yourself saying ‘Warren Buffett wouldn’t do that’… well, good luck with that type of ‘analysis’. 4.) Shift to private/associate holdings A big change has been happening with the composition of Fairfax’s equity holdings over the past 7 or 8 years. There has been a shift from publicly traded stocks to private holdings. Today most of Fairfax’s largest equity holdings fall into the ‘private’ bucket. And most of those that don’t fall into the ‘associates’ bucket (which means Fairfax exerts significant influence). This shift at Fairfax reflects what has also been happening in financial markets in general in recent years - more and more capital is shifting from public to private markets, especially with large institutional investors. This is trend looks like it is just getting started. In recent years, many of Fairfax’s large equity investments have been private: 2022: Purchase/take private of Recipe and significantly increase stake in Grivalia Hospitality. 2023: Purchase of Meadow Foods. 2024: Purchase/take private of Sleep Country (100%) and significantly increase stakes in Meadow Foods (93%) and Peak Achievements (100%). The shift to private/associate holdings will have important implications for investors in how it impacts reported results (the income statement and balance sheet). Another meaningful income stream is being created: ‘non-insurance consolidated holdings’ income stream will be spiking higher in the coming years (yes, off a very small base). Less volatility in another income stream: As true ‘mark to market’ equity holdings shrink in size (as a percent of the total equity portfolio), we should see less volatility in the ‘unrealized investment gains (losses)’ income stream. In the coming years, the reported results of ‘new Fairfax’ will be much less volatile than what was experienced with ‘old Fairfax’. Will the shift to private/associate holdings create a Berkshire Hathaway type of problem for Fairfax… will book value become a poor tool to use to value Fairfax? Over the past 4 years, for Fairfax’s associates and consolidated equity holdings, the increase in economic value has been much greater than the increase in reported accounting value. One way to measure this through the ‘excess of fair value over carrying value.’ At December 31, 2024, the excess of FV over CV was $1.48 billion ($68/share pre-tax). This is value that has been created that is not captured in reported EPS and BV. This will be something for investors to monitor and factor into their assessment of the performance/valuation of the company in the coming years. 5.) Fairfax has largely fixed its ‘problem’ equity holdings from pre-2018 Back in 2018, Fairfax’s equity portfolio was littered with underperforming equity holdings. But around that time, it’s like the senior team at Fairfax decided enough was enough. It looks to me like they ‘tweaked’ their investment framework and put more of a premium on: Partnering with strong management teams. Profitability. Financial strength. This new framework helped with new equity purchases. But what to do with poorly performing ‘legacy’ holdings? Fairfax rolled up their sleeves and got to work: AGT Food and Ingredients was taken private (its business is far too volatile to be a publicly traded company). APR Energy was sold to Atlas (for shares). Fairfax Africa was placed into runoff / merged with Helios. Resolute Forest Products was sold (at the peak of the lumber market for a very good price). Farmers Edge went bankrupt. Blackberry debentures were exited (freeing up $500 million in capital). It took 7 years, but Fairfax has largely ‘fixed’ most of its poorly performing legacy equity holdings. These holdings were a significant and recurring drain of financial and management resources - they were a steady ‘use of cash’ of about $200 million per year (on average) for many years (cash infusions, write downs etc). It is like a $200 million annual expense has been eliminated. Fixing legacy holdings carries 3 benefits for Fairfax: It removes a large annual expense. It has shifted a significant amount of capital to better performing companies/opportunities that are now delivering solid results/earnings - which are beginning to compound in value. Assets that were a significant use of cash (of $200 million/year?) have now become a significant source of cash (more than $200 million/year?). The swing (the benefit to Fairfax financials) is actually the sum of the two (+$400 million in our example). It makes Fairfax's lean senior management team much more productive - it shifts their use of time from problems to opportunities. Every equity portfolio will always have a few poor performers. Fairfax’s problem back in 2018 was they had too many poorly performing holdings and they were large in size (many were top 10 holdings). Summary For the past 7 years, the overall quality of Fairfax’s collection of equity holdings has been slowly and steadily improving. The impact on earnings lagged initially. But after years of effort, the improvements made are now showing up in reported results and earnings. As a result, today, the quality of Fairfax’s collection of equity holdings has never been/looked better, in terms of: Management (Fairfax / Hamblin Watsa / Fairbridge) Fundamentals Profitability/earnings power Prospects That is a wonderful set-up for Fairfax shareholders. Now we get to watch compounding work its magic. The sequence of returns matters The size of Fairfax’s equity portfolio - at $23 billion - has never been bigger. Fairfax is delivering exceptional performance at the perfect time. Edited April 2, 2025 by Viking
gfp Posted April 2, 2025 Posted April 2, 2025 33 minutes ago, Haryana said: Just looked that 13F showing $122mm on 2.7mm shares as of 31Dec24end implying $45. https://13f.info/13f/000110465925013269-fairfax-financial-holdings-ltd-can-q4-2024 That's just the end of the quarter/year closing price. Not their cost basis.
Viking Posted April 2, 2025 Posted April 2, 2025 3 minutes ago, Haryana said: While vulnerability to volatility of stock market has reduced due to private holdings, Fairfax remains highly vulnerable to the volatility of bond market. And while they have locked in interest rates for the next four years, they remain vulnerable to unrealized losses on bonds due volatility of interest rates. And while the IFRS discounting cushions the blow of losses or gains on bonds, it remains far from enough to mitigate that volatility completely as we saw at the end of financial year 24. They themselves reported that there was swing of one billion dollars in earnings due to the volatility of their bond prices. @Haryana , sorry, I am not following you. Here is my understanding: If bond yields fall (they are down quite a bit since December 31, 2024), Fairfax will book a big investment gain. They also will take a hit with IFRS. But the gain will be bigger than the hit. The opposite will happen if interest rates move in the opposite direction. But you mention ‘vulnerable’. What do you mean by this? If we get volatility, there will be many different puts and takes. When I look at risks I also try and come up with what the corresponding opportunity will be. And vice versa.
Viking Posted April 2, 2025 Posted April 2, 2025 3 minutes ago, Haryana said: The 13F showing that as a new holding in Q4, thus it could be close but my point was on how much it gained in this quarter. With all these gains in equities and recovery in bonds, can we expect Q1 EPS to be over $60 or a new quarterly EPS record? I think it is hard to pin down an exact number. Underwriting will likely be a headwind (given the LA fires) but hard to know how much. And yes, there will be tailwinds: Investment gains - mark to market stocks Investment gains - fixed income (offset somewhat by IFRS 17) Currency (strong euro) - which will be a small tailwind to book value The big gains from Eurobank will boost excess of FV over CV but this will not impact EPS or BV. Bottom line, my guess is we see a solid quarter (but I am not expecting a blowout quarter).
Viking Posted April 2, 2025 Posted April 2, 2025 (edited) 7 minutes ago, Haryana said: I mean vulnerable to volatility which could be plus or minus. If you look at the last 2 years we have seen pretty dramatic volatility in fixed income markets (interest rates) in both directions (pretty wild swing in yields every 6 months across the curve). Was the extreme volatility terrible for Fairfax? No. Not even close. If anything it has had a net positive impact (looking at it from a big picture perspective). Edited April 2, 2025 by Viking
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