ValueNation Posted May 20, 2025 Posted May 20, 2025 In my mind the treasury shares are an asset, just like the cash on the balance sheet, in the numerator of BVPS. However, they should not be in the denominator of BVPS till they vest - am I thinking about this correctly?
SafetyinNumbers Posted May 21, 2025 Posted May 21, 2025 5 hours ago, ValueNation said: In my mind the treasury shares are an asset, just like the cash on the balance sheet, in the numerator of BVPS. However, they should not be in the denominator of BVPS till they vest - am I thinking about this correctly? That’s sort of how I think about it. We own them until they vest but we don’t get the benefit from them. So not an asset but not dilutive until they vest. If FFH issued them when they vested it would be a much more expensive program.
nwoodman Posted May 21, 2025 Posted May 21, 2025 14 hours ago, SafetyinNumbers said: James East pointed out the EUROB buybacks over on X. I appreciate the aggressiveness! Very accretive at these prices. Fingers crossed we get a bit of a downturn in the market and they can keep firing away at these prices or even lower.
dartmonkey Posted May 21, 2025 Posted May 21, 2025 16 hours ago, ValueNation said: In my mind the treasury shares are an asset, just like the cash on the balance sheet, in the numerator of BVPS. However, they should not be in the denominator of BVPS till they vest - am I thinking about this correctly? I think it is confusing to ask the question about whether they should be in the denominator or not - what is clearer is, what is the book value of the firm, i.e. assets less liabilities ? The treasury shares, which the company owns and has paid for with cash, are clearly assets, as you say, and should be coutned in the numerator. And anything that is counted in the numerator should probably also be counted in the denominator. One way of thinking about it is to suppose that these treasury shares were all held by a company that belonged 100% to Fairfax. Let's say Fairfax has 20m shares outstanding, and there are 1 million shares in this wholly owned company that belongs to Fairfax, earmarked for distributing to employees but not 'owned' by employees yet, i.e. not vested. Let's say Fairfax has a book value of $21b, altogether, including these treasury shares in the assets column. Now who do these assets belong to? Well, let's say Fairfax changed its policies, and sold those 1 million shares on the open market, at 1.5x book, so the company they own now has $21.5b in assets, and clearly, they will now have 21 million shares outstanding. I would say their book value is not 21.5b/21m= $1024/share, since they sold 5% of their shares were sold at a 50% premium to book value. The fact that Fairfax will be using these assets as future remuneration is irrelevant - they are an asset on the balance sheet, and the full assets of the company, including these ones, will be eventually owned by 21 million shares. So I would put them in both the numerator and the denominator.
Viking Posted May 21, 2025 Posted May 21, 2025 Recipe - Eating more of its own cooking Introduction Fairfax has been executing/undergoing a remarkable transformation over the past 7 or 8 years. The fundamentals of its two core businesses - insurance and investment management - have been steadily improving. As a result, beginning in 2021, operating earnings at the company began to spike higher. Investors are liking what they are seeing - Fairfax’s P/BV multiple has been expanding. Spiking earnings, expanding multiple and much lower share count is rocket fuel for a stock - Fairfax’s share price (US$) is up 382% since Dec 31, 2020. There is still much to learn about how the many improvements that Fairfax has been making to its business over the past 7 or 8 years will impact fundamentals/financial results in the coming years. Doing deep dives into different parts of Fairfax’s business helps us improve our understanding of the company. In turn, this helps us: Properly value the business/company. Ensure we have the correct position size with our investment. My guess is Fairfax’s transformation is still in its early innings. ————- Recipe Unlimited Today we will do a deep dive on one of Fairfax’s larger equity holdings, Recipe Unlimited. In 1H 2025, Fairfax made two investments that increase its ownership in Recipe (and all of its restaurant banners) to 100%. So this is a good time to do an updated post on Recipe - to see what we can learn about both Recipe and Fairfax. This post will cover the following topics: A short review of Recipe Unlimited In late 2022, Fairfax takes Recipe private. LBO M&A model used by private equity. In Q1 2025, Fairfax takes out its minority partner in Recipe - Cara Holdings In May 2025, Fairfax proposes to takeout The Keg Royalties Income Fund (‘KRIF’) What does Fairfax do next with its investment in Recipe? What did we learn about Fairfax - putting it all together Let’s get started by doing a quick review of Recipe. ————— 1.) A short review of Recipe Unlimited Who is Recipe Unlimited? From Recipe’s corporate website: https://www.recipeunlimited.com/en/our-brands.html “Recipe Unlimited Corporation is Canada’s leading full service restaurant company. We are a nationally recognized franchisor of choice with 1,200+ restaurants located in more than 300 communities across Canada, including many international locations. Home to such iconic brands as Swiss Chalet, Harvey’s, St.Hubert, The Keg, Montana’s, Kelseys, Bier Markt, East Side Mario’s, Landing Group, New York Fries, The Pickle Barrel & Catering, State and Main, Elephant and Castle, Original Joe’s, The Burgers Priest, Fresh, Blanco Cantina and Añejo.” What is Recipe’s business model? About 80% of Recipe’s 1,200 restaurants are franchised and 20% are corporate owned (2022 stat). The franchise business model has many advantages for the parent company (Recipe): Capital light - The capital needed to run the restaurant comes from/is obtained by the franchisee. An important source of leverage. Operationally light - The day to day operations of the restaurant are managed by the franchisee. They have the local know-how. Steady income streams - An up front fee is charged to new franchisees. And an ongoing royalty fee (percent of total sales) is collected from all franchisees. With Recipe, Fairfax is not really in the restaurant business (which is a very tough business). It is really in the franchise business (attracting, supporting and retaining a large group of wealthy entrepreneurs/business partners as franchisees). This is an important distinction. Stable earnings What this means is Recipe has a business that generates solid and (relatively) stable earnings. In 2024, the company generated about $82 million (C$114 million) in free cash flow. ———— In 1997, Warren Buffett bought Dairy Queen. My guess is what attracted him to the business were the financial characteristics of the franchise model that provides a steady source of excess capital that Berkshire Hathaway can then redeploy into other opportunities/businesses. https://www.berkshirehathaway.com/news/oct2197.html ———— 2.) In late 2022, Recipe is taken private On September 1, 2022, Recipe (then a public company) agreed to be taken private by Fairfax. Fairfax paid $354 million (C$465 million) to take out the public shareholders. Fairfax increased their stake in Recipe from 46% to 84%. Cara Holdings (founding Phelan family) continued to hold a 16% equity stake in Recipe. There were two very good reasons for Fairfax to take Recipe private: Financial - Fairfax was able to take Recipe private at a very attractive (low) price. Operational - In 2021, Recipe got focussed on integrating/rationalizing/optimizing the many large restaurant banner mergers/acquisitions completed from 2013 to 2018 (CARA Operations, Prime Restaurants, New York Fries, St-Hubert, Original Joe’s, The Keg). This was going to be a multi-year process. Fairfax decided this could best be done as a private company. There are a couple of other important benefits to being a private company: CEO is able to focus 100% on operating the business - responsibilities of being a publicly traded company are eliminated. Management is able to run the business with a long term focus - not possible as a publicly traded company (where hitting the expected quarterly earnings number is the primary focus). Prem’s comments about the Recipe purchase from Fairfax’s 2022AR: “We decided to take Recipe private, and on August 9, 2022 we offered a 53% premium to the pre-announcement stock price. 99% of the shareholders tendered to the bid. We felt that as Recipe had undergone many acquisitions since it went public in April 2015, it was best to rationalize its operations in a private format. The Phelan family decided to stay with us for 16% and we have the remaining 84%. Frank Hennessey continues as CEO with Ken Grondin as CFO.” Fairfax was opportunistic - They bought low Fairfax was very opportunistic with the timing of its purchase of Recipe. From 2018 to 2019 (before Covid), Recipe’s share price traded in a range from C$25 to C$28/share. Covid hit the full-service restaurant business in Canada hard (lock downs). In 1H 2020, Recipe’s shares traded below C$10/share. In September 2022, when Fairfax announced its take-private offer, Recipe’s shares were trading below $C14.00/share. Fairfax’s takeout price was C$20.70/share, which was well below where the stock had traded in 2018/2019 (pre-Covid). In September 2022, Canada’s full-service restaurant industry was just emerging from Covid - earnings had not yet rebounded to pre-Covid levels. Fairfax was able to take Recipe private at a very attractive price. It did not have to pay a premium, which normally happens when a public company is taken private. Recipe was also a high certainty acquisition for Fairfax. They understood the company very well - its past, present and future potential. This made the Recipe take-out a very low risk investment for Fairfax. In 2021, Recipe was deleveraging its balance sheet Setting the table Recipe’s dividend was suspended in 2020 shortly after Covid hit. Recipe did not pay a dividend in 2021 (the Canadian government did not allow companies who had received Covid assistance to pay a dividend) - its free cash flow was used to reduce debt, which came down by $76 million (C$95 million). Prem’s comments about Recipe from Fairfax’s 2021AR: “Recipe survived another tough year in 2021 as lockdowns closed its restaurants for long periods during the year. In spite of these lockdowns, Recipe pivoted to e-commerce sales, curbside pick-up and home delivery to generate system sales of Cdn$2.7 billion, up 12% from 2020 and down 22% from 2019. E-commerce sales now account for Cdn$675 million or almost 25% of Recipe’s system sales, up from Cdn$340 million or 10% of system sales in 2019. Recipe’s franchise revenue was Cdn$150 million in 2021, up 18% from 2020, and EBITDA for the year was Cdn$144 million, down 33% from pre-pandemic levels of Cdn$216 million. Recipe was able to reduce its debt outstanding by Cdn$95 million in 2021, capping an outstanding performance by Frank Hennessey and his team.” How was the take-private of Recipe financed? In 2022, Fairfax paid a total of $354 million to take Recipe private. This was comprised of two parts: Cash consideration from Fairfax of $242.5 million. Increase in borrowings at Recipe of $99.8 million. (Paying down debt in 2021 certainly was well timed.) In taking Recipe private, Fairfax tapped a second source of ‘other people’s money’: Cara Operations continued on as a 16% minority equity partner. Fairfax only had to pay $242.5 million in cash to take Recipe private and increase its ownership from 46% to 84%. Fairfax also used ‘other people’s money’ of $248 million to help pay for the take private (debt from Recipe and equity from Cara Operations). Using leverage (other people’s money) was a way for Fairfax to keep its capital contribution low. This is a proven/smart way to generate a higher return on its equity investment in Recipe (ROE). What does this transaction look like? It kind of looks like the leveraged buyout merger and acquisition model that is used by private equity. Not exactly… but it does share many of the same characteristics. This might be important. Let’s explore this more. Details on the Recipe purchase from Fairfax’s 2022AR: “On October 28, 2022 the company acquired all of the multiple voting shares (“MVS”) and subordinate voting shares in the capital of Recipe, other than those shares owned by the company and 9,398,729 MVS owned by Cara Holdings Limited, at a cash purchase price of Cdn$20.73 per share or $342.3 (Cdn$465.9) in aggregate, comprised of cash consideration of $242.5 (Cdn$330.0) and an increase in borrowings by Recipe of $99.8 (Cdn$135.9).” 3.) Leveraged buyout (LBO) merger and acquisition (M&A) model The LBO M&A model used by private equity can be summarized as follows: Buy another company (using a lot of leverage). Improve its operations. Use the cash flow from the business to reduce leverage. Sell the company for a big profit 5 or so years later. A small up-front equity investment can deliver an exceptional rate of return. The mechanics of an LBO An LBO is a method used to buy another company by primarily using other people’s money (usually debt). The financial sponsor (the acquiring company) provides a small amount of equity capital (perhaps 1/3 of the total purchase price). Lenders provide the debt, which is used to pay the majority of the purchase price (perhaps 2/3 of the total purchase price). The financial assets of the acquired company are used as collateral to obtain the debt financing. The debt is non-recourse to the financial sponsor. The free cash flow of the acquired company is used to: Pay the interest costs. Pay down debt. Grow the business. Funding most of the purchase price with debt applies a significant amount of leverage to the deal for the financial sponsor. As the debt is paid down the value of the equity increases. Because a small amount of equity was used to make the initial purchase, over a 5-year period the return on equity for the financial sponsor can be quite large. Key: For this model to work the company being acquired has to generate solid and consistent free cash flow. The leverage (usually debt) needs to get paid down over time. Let’s apply what we learned to Fairfax’s take-private of Recipe to see what we can learn. 3.) Fairfax’s ‘LBO light’ M&A model If it If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. Fairfax is not a private equity shop. It is a P/C insurance company. As a result, it is going to ‘tweak’ the LBO M&A model described above to fit its business model. Looking at the Recipe take-private deal, Fairfax made two important ‘tweaks’ to the traditional LBO M&A model: The amount of debt put on Recipe’s balance was reasonable - both the incremental amount ($99.8 million) and the total amount ($464 million). Fairfax also used equity to fund part of the total purchase price (this keeps the D/E ratio reasonable). They included a minority partner (Cara Operations) in the take-private deal. Fairfax knew Cara well (had been partnered with them since 2013) - they were a long term, trusted partner. Cara owned 16% of Recipe’s publicly traded shares and they agreed to roll their ownership stake over into the private company. Fairfax has a long history of using minority partners when making large acquisitions (insurance and non-insurance businesses). It looks to me like Fairfax has been using an ‘LBO light’ M&A model for years. I call it ‘light’ because they go easy on the total amount of leverage they use (which lowers the risk). And they sometimes use both debt and equity as sources of leverage (which lowers the risk even more). Fairfax has a stated return target of 15% when making equity investments. Using a modest amount of leverage helps Fairfax achieve this target. Cash flow is super important OK, it has been couple of years since Recipe was taken private at the end of 2022. As we discussed, under the LBO M&A model free cash flow is used to reduce leverage. What did Recipe do in 2023 and 2024? Recipe reduced total debt by $64 million in 2023 and another $90 million in 2024. These actions further support our ‘LBO light’ M&A model thesis for Fairfax. OK, with total debt at Recipe low, what does Fairfax do next? We got our answer in Q1 of 2025. ————— 4.) In Q1 2025, Fairfax takes out its minority partner in Recipe - Cara Holdings Transaction details In Q1 2025, Fairfax took out its minority partner in Recipe - Cara Holdings, who owned a 16% stake. It appears Fairfax paid US$157.6 million. (We didn’t get confirmation from Fairfax of the exact amount - but I think this number is directionally accurate). Cara Holdings is owned by the Phelan Family. The Phelan family’s roots in Recipe/Cara go back to 1850 when Thomas Patrick Phelan began selling apples and newspapers to passengers on the Niagara steamboats. Historical timeline for Recipe and its accumulation/roll-up of Canadian restaurant banners: https://www.recipeunlimited.com/en/about/timeline.html How was the purchase of Cara Operations stake in Recipe financed? Recipe took on more debt ($132.1 million) to fund the takeout of Cara Holdings. Total debt at Recipe continues to be very manageable. Over the next year, the free cash flow of Recipe will likely be used to pay down Recipe’s debt. From Fairfax’s Q1 2025 Interim Report: “During the first quarter of 2025 Recipe increased its borrowings by $132.1 (Cdn$190.0) to partially fund the repurchase and cancellation of its common shares not owned by Fairfax as described in note 12.” “Net borrowings on revolving credit facilities and short term loans - non-insurance companies of $160.7 and purchases of subsidiary shares from non-controlling interests of $157.6 in 2025, primarily reflected additional draws by Recipe on its revolving credit facility to repurchase and cancel its common shares not owned by Fairfax.” We come full circle Fairfax used minority partner Cara Operations as a short term source of cash/leverage when it to took Recipe private in 2022. At the time, Fairfax contributed cash of only $243 million, which boosted its ownership position from 46% to 84%. Contributing no new cash, Fairfax now owns 100% of Recipe and its free cash flow ($80 million in 2024). The return on Fairfax’s $243 million investment in Recipe over the past 2.5 years has been very good. With Fairfax now owning 100% of Recipe and total debt at a reasonable level, what does Fairfax do next? We got our answer on May 5, 2025. ———— 5.) In May 2025, Fairfax’s proposes to takeout The Keg Royalties Income Fund (‘KRIF’) Transaction details Recipe owns 100% of all of its large restaurant banners, except the Keg. From an ownership perspective, the Keg has two pieces: The corporate entity, Keg Restaurants Limited (KRL), which is 100% owned by Recipe. The subsidiary, KRIF, which is publicly traded. Fairfax owns 50.5% of KRIF. KRIF holds the trademarks and intellectual property used by the Keg. KRIF collects a royalty of 4% of sales (on corporate and franchised restaurants) from KRL. KRIF pays out its earnings in a monthly distribution to shareholders. KRIF corporate website: https://thekeg.com/en/keg-income-fund Fairfax is offering to pay C$18.60/share for KRIF. This values 100% of the company at US$151 million. It will cost Fairfax about $75 million to buy the 49.5% of KRIF it does not own. Details of Fairfax’s offer: https://thekeg.com/en/keg-income-fund/05052025 KRIF currently pays out a month distribution to shareholders of C$0.0946/share. The total payout for KRIF is US$9.2 million per year. Why do this transaction? There are a number of benefits to Recipe and Fairfax from doing this transaction. Structure/Operational benefits As we mentioned earlier in this post, one of the primary reasons Recipe was taken private in late 2022 was to better support the ‘rationalization’ of its operations (consolidate/integrate the many different restaurant banners that were merged/purchased from 2013 to 2018). The purchase of the KRIF will give Recipe 100% control of the Keg. This will allow Recipe to complete its rationalization efforts (as it will control 100% of its large restaurant banners - the KRIF layer can be eliminated (people, reporting and complexity). This purchase brings to a close the aggressive roll-up strategy that Recipe/Cara executed from 2013 to 2018. Strategic benefits - the future Having 100% control of the Keg will give Recipe greater flexibility - and allow it to manage the banner as it sees fit moving forward - unconstrained by the needs of KRIF. The Keg has the potential to be a growth driver for Recipe moving forward (international expansion). Having a more conventional capital structure should also assist the company in financing its growth initiatives at the Keg. Financial The price being paid ($151 million) to take KRIF private is reasonable. Fairfax owns 50.5% of KRIF, so the cash required to complete the take private is $75 million. This purchase will grow Recipe’s total earnings as 100% of KRIF earnings will now accrue to Recipe. How will the takeout of KRIF be financed? We do not know how Fairfax will finance the KRIF purchase when it closes later in 2025. There is a good chance it could be funded by Recipe (from increased borrowings). Summary The purchase of KRIF will give Recipe 100% ownership of the Keg. This provides meaningful operational and strategic benefits to Recipe. The financial benefits are solid. The purchase of KRIF also brings to a close the aggressive roll-up strategy that Recipe/Cara executed from 2013 to 2018 (with Recipe now owning 100% of its major restaurant banners.) ————— 6.) What does Fairfax do next with its investment in Recipe? The economic value of Fairfax’s investment in Recipe has been growing nicely over the past 2.5 years. The increase in economic value has not been captured by a corresponding increase in Fairfax’s (accounting) carrying value for Recipe. (The carrying value for Recipe is what is reflected in Fairfax’s book value.) The value creation at Recipe in recent years has been hidden. Fairfax will find a way to surface the hidden value in the future. Moving forward, Fairfax has three broad options with Recipe: Keep the business - Use it as a cash cow. Strategic sale - Sell to another player in the industry. IPO - Sell all or part of the company to the public. Of course, it is impossible to know what Fairfax ultimately will do. We do know that they will be opportunistic - they will sell investments when it makes sense. The bottom line, with their decisions and execution over the past 3 years, Fairfax has put themselves in a very good position - they have lots of very good options. Welcome to ‘new Fairfax’. ————— 7.) What did we learn about Fairfax - putting it all together With the takeout of KRIF, Recipe will own 100% of its restaurant banners. With the takeout of CARA Operations, Fairfax now owns 100% of Recipe. Both transactions greatly simplify Recipe’s structure. Recipe/Fairfax will also have greater flexibility to manage its total business and its many restaurant banners as it sees fit moving forward - unconstrained by the needs/wants of minority partners. These transaction have been financed using an ‘LBO light’ model - with the majority of the cash coming primarily from Recipe (debt, which is then paid off with its free cash flow). These transactions satisfy the dual objectives of capital allocation done well: Operationally, they make Recipe a much stronger / more resilient company. They provide a solid rate of return to Fairfax and its shareholders. ————— Fairfax has been very active with its investment in Recipe Unlimited over the past 3 years. What did we learn about Fairfax’s senior team and how they do capital allocation? Below are some thoughts: Strategic - Goal was to get 100% control of Recipe and 100% control of all its banners. Long term focus- Required execution of a multi-year strategy to achieve the goal. Patient - Did not get impatient and force things/timing. Let the opportunity play out naturally over time. Opportunistic - The takeout of Recipe’s minority shareholders in 2022 was done at a low price. The takeout of the Keg minority shareholders in 2025 was done at a fair price (this transaction has not closed yet as of May 2025). Creative - Used debt (Recipes balance sheet) and equity (Cara Operations) to fund much of the total purchase price. Free cash flow of Recipe was used to reduce leverage. Delivered a solid return to Fairfax and its shareholders. Fairfax has developed many different capabilities when it comes to capital allocation When it comes to how it allocates capital, Fairfax has developed a number of different capabilities over the past 7 or 8 years. ‘LBO light’ is just one example of a model that Fairfax has successfully utilized in recent years with many of its take-private purchases (Sleep Country and Peak Achievements being two of the most recent examples). As we learned with Recipe and what Fairfax has done with this investment since 2022, this ‘LBO light’ capability is not ‘theoretical.’ Fairfax has clearly demonstrated they know what they are doing. It is a proven capability. When it comes to capital allocation, having a full toolbox of proven capabilities allows Fairfax to be very patient and opportunistic. In turn, this should allow them to earn a higher rate of return on the business over time. And that is what we are starting to see. The bigger picture - an important source of liquidity Having 100% ownership of operating businesses like Recipe makes Fairfax a more resilient company from a financial perspective. Recipe provides a stable and growing source of free cash flow for Fairfax that is not correlated with the P/C insurance business. Recipe is a desirable asset. It could be sold (all or part) to raise cash. ========== Prem’s comments about Recipe from Fairfax’s 2024AR. “Recipe surpassed its record-breaking system sales in 2023 (adjusted for the 53rd week) with system sales of Cdn$3.6 billion in 2024.Revenue was up 0.5% driven by improvements in corporate restaurants and the consumer packaged goods business. The company delivered Cdn$114 million in free cash flow and reduced overall leverage to less than 2x. With a strong underlying business, Frank Hennessey, Ken Grondin and their team are focused on top line growth. Expansion is under way in the United States and Indian markets, complemented by organic growth in Canada from new restaurants. The company will also be launching new products in its already sizable consumer packaged goods business (where Recipe’s brands are sold in grocery stores). Recipe is carried on our balance sheet at 10x free cash flow.” Recipe’s 2024 free cash flow and valuation Free cash flow (2024) = C$114 million = US$82m Recipe share (84%) = US$69 million Fairfax’s carrying value for 84% stake in Recipe = $669 million (at Dec 31, 2024) = 9.7 x 2024 FCF
petec Posted May 21, 2025 Author Posted May 21, 2025 You could argue that the balance sheet is a snapshot of what the company is worth if you wind it up. So unless the shares vest on a windup, you can exclude them from today's BVPS. Fair?
petec Posted May 21, 2025 Author Posted May 21, 2025 14 hours ago, nwoodman said: Very accretive at these prices. Fingers crossed we get a bit of a downturn in the market and they can keep firing away at these prices or even lower. Remind me, does this mean FFH has to slowly sell to keep its stake below a threshold?
SafetyinNumbers Posted May 21, 2025 Posted May 21, 2025 1 minute ago, petec said: Remind me, does this mean FFH has to slowly sell to keep its stake below a threshold? I believe they will. It’s not clear they are participating pro rata like you see with IMO and XOM for example
Viking Posted May 21, 2025 Posted May 21, 2025 (edited) How is Fairfax's equity portfolio performing so far in Q2-2025? Very well. To May 21, it has increased in value from $23.2b to $24.2b. QTD is up about $988m or $46/share (pre-tax). The two largest holdings, Eurobank and FFH-TRS are the two stars. International is doing well. I have attached my Excel spreadsheet at the bottom of this post for those who want to dig into more detail. PS: Digit is also up nicely QTD. This is not included in my summary. Fairfax May 21 2025.xlsx Edited May 21, 2025 by Viking
Hoodlum Posted May 21, 2025 Posted May 21, 2025 10 minutes ago, petec said: Remind me, does this mean FFH has to slowly sell to keep its stake below a threshold? Fairfax cannot go over 33.3% ownership of Eurobank. Their sale in February brought there ownership down to 32.89%, so they will need to start slowly selling once Eurobank has bought back ~1% of outstanding shares. Based on their currently buying that will take ~50 business days and hopefully it will be trading higher by then (end of July).
nwoodman Posted May 21, 2025 Posted May 21, 2025 5 minutes ago, Hoodlum said: Fairfax cannot go over 33.3% ownership of Eurobank. Their sale in February brought there ownership down to 32.89%, so they will need to start slowly selling once Eurobank has bought back ~1% of outstanding shares. Based on their currently buying that will take ~50 business days and hopefully it will be trading higher by then (end of July). Agree, it makes sense to keep shaving their shareholding so that buybacks can continue. I haven’t done the numbers but intuitively this should be the case up to ~€3 say an 80-85c dollar.
nwoodman Posted May 22, 2025 Posted May 22, 2025 (edited) 8 hours ago, Viking said: It looks to me like Fairfax has been using an ‘LBO light’ M&A model for years. I call it ‘light’ because they go easy on the total amount of leverage they use (which lowers the risk). And they sometimes use both debt and equity as sources of leverage (which lowers the risk even more). @Viking thanks for the Recipe write-up. It’s interesting to consider your point about LBO-light in the context of competition for deals. Fairfax increasingly finds itself competing with traditional private equity firms for control of cash-generating private businesses, but I think we agree it’s playing a different game. Where PE relies on high leverage, rigid hold periods, and LP-mandated exits, Fairfax brings permanent capital, low leverage, and long-term stewardship. That’s become a real advantage in today’s market. As rates have risen and PE faces a post-COVID indigestion of overvalued 2021-vintage deals, Fairfax can step in with a “lighter” deal structure, trusted brand, and no pressure to sell. What struck me at the AGM was how often decentralisation, trust, and cultural continuity came up. From the Recipe acquisition to Allied World, Meadow Foods, Sleep Country, and Peak. Success is breeding success. The more companies that join and thrive, the more Fairfax becomes the partner of choice for founders who want to sell. A flywheel effect? Stewart Schaefer (CEO of Sleep Country) captured this dynamic perfectly in his AGM remarks: “We weren’t even for sale. And my partner and my mentor for many years, Christine Magee… a lot of private equity guys came knocking on the door… most of them were the Wolf of Wall Street… nobody really saw the value that we created over the last 30 years—until I met Prem. The big difference was when I started to talk to Prem or to any other member of the Fairfax team, there was a consistency in terms of the questions that they asked, which were very different than any private equity. And you heard it from everyone today—culture, decentralisation, and long-term thinking.” Further I had a chat with the Meadow guys and amongst many interesting anecdotes was the reduction in time spent making decisions and even time spent in meetings. It’s hard to put a value on reducing friction for these guys that might otherwise exist with a more normal PE owner, where the risk is micromanagement or worse, short term thinking vs long term thinking. Fairfax’s approach, modest leverage, trusted operators, patient capital, makes it uniquely well-suited to step in where PE can’t. The model is replicable and most importantly scalable!! (A hat tip to Prem) Edited May 22, 2025 by nwoodman
Viking Posted May 22, 2025 Posted May 22, 2025 1 hour ago, nwoodman said: @Viking thanks for the Recipe write-up. It’s interesting to consider your point about LBO-light in the context of competition for deals. Fairfax increasingly finds itself competing with traditional private equity firms for control of cash-generating private businesses, but I think we agree it’s playing a different game. Where PE relies on high leverage, rigid hold periods, and LP-mandated exits, Fairfax brings permanent capital, low leverage, and long-term stewardship. That’s become a real advantage in today’s market. As rates have risen and PE faces a post-COVID indigestion of overvalued 2021-vintage deals, Fairfax can step in with a “lighter” deal structure, trusted brand, and no pressure to sell. What struck me at the AGM was how often decentralisation, trust, and cultural continuity came up. From the Recipe acquisition to Allied World, Meadow Foods, Sleep Country, and Peak. Success is breeding success. The more companies that join and thrive, the more Fairfax becomes the partner of choice for founders who want to sell. A flywheel effect? Stewart Schaefer (CEO of Sleep Country) captured this dynamic perfectly in his AGM remarks: “We weren’t even for sale. And my partner and my mentor for many years, Christine Magee… a lot of private equity guys came knocking on the door… most of them were the Wolf of Wall Street… nobody really saw the value that we created over the last 30 years—until I met Prem. The big difference was when I started to talk to Prem or to any other member of the Fairfax team, there was a consistency in terms of the questions that they asked, which were very different than any private equity. And you heard it from everyone today—culture, decentralisation, and long-term thinking.” Further I had a chat with the Meadow guys and amongst many interesting anecdotes was the reduction in time spent making decisions and even time spent in meetings. It’s hard to put a value on reducing friction for these guys that might otherwise exist with a more normal PE owner, where the risk is micromanagement or worse, short term thinking vs long term thinking. Fairfax’s approach, modest leverage, trusted operators, patient capital, makes it uniquely well-suited to step in where PE can’t. The model is replicable and most importantly scalable!! (A hat tip to Prem) @nwoodman, you make many great comments. The deal flow angle might be key moving forward - kind of what happened with Sleep Country. It makes sense entrepreneurs will want to parter with Fairfax (for the reasons you provided). I am also learning that when evaluating Fairfax’s investments it is critical to understand how much capital they are putting in and what the return on that will be (and not focus less on deal size). Sleep Country is a good example of this. The minority partner angle is also super interesting to me - where Fairfax uses equity to get ‘other people’s money’ - which is another important source of leverage. Fairfax used this extensively when making their many insurance acquisitions from 2015 to 2017. And they used it again as a source of cash when they sold 9.9% of Odyssey to fund the dutch auction (2 million share buyback at $500/share). Leverage allows Fairfax to earn a higher return on its equity. We typically only look at debt to understand Fairfax’s leverage. We probably should include the equity (minority partners) as well. I find it really interesting how unique/creative Fairfax is when it comes to capital allocation.
glider3834 Posted May 22, 2025 Posted May 22, 2025 (edited) Fairfax lent John Keells (JKH) US $75M in convertible debentures to help build Colombo West Intl Container Terminal and they later exchanged these converts for an additional ~11.5% stake (approx US$150M mkt value ) in JKH The fully automated port build is now complete & up & running... Edited May 22, 2025 by glider3834
Viking Posted May 22, 2025 Posted May 22, 2025 Has Eurobank quietly become Fairfax’s best equity investment ever? It has delivered a total return from inception (Dec 2014) of about $2.8b. Of note, the entire return has come over the last 4.5 years. Trading at €2.66/share, Eurobank’s stock is still undervalued - suggesting there is much more upside to come from here. The dividend Fairfax is receiving from Eurobank is larger than the cumulative dividends Fairfax is receiving in a year from all of its mark to market common stock holdings. Many of Fairfax equity holdings are generating lots of cash (Eurobank, Poseidon, Recipe etc). Some of that cash is making its way to Fairfax. Welcome to new Fairfax.
TwoCitiesCapital Posted May 22, 2025 Posted May 22, 2025 (edited) 15 minutes ago, Viking said: Has Eurobank quietly become Fairfax’s best equity investment ever? It has delivered a total return from inception (Dec 2014) of about $2.8b. Of note, the entire return has come over the last 4.5 years. Trading at €2.66/share, Eurobank’s stock is still undervalued - suggesting there is much more upside to come from here. The dividend Fairfax is receiving from Eurobank is larger than the cumulative dividends Fairfax is receiving in a year from all of its mark to market common stock holdings. Many of Fairfax equity holdings are generating lots of cash (Eurobank, Poseidon, Recipe etc). Some of that cash is making its way to Fairfax. Welcome to new Fairfax. Does this include the losses from pre-restructuring? Can't remember if the wipe out of commons occurred in 2014 or 2015 to know if Fairfax is including that in their calculation of the basis. Has certainly been a monster success story post-covid, but not sure how great it's been over the 10-year horizon once accounting for the initial wipeout of capital invested. Edited May 22, 2025 by TwoCitiesCapital
Xerxes Posted May 22, 2025 Posted May 22, 2025 There was a time not long ago (pre Covid), when FFH high risk investment in Eurobank was being compared to Berkshire sound quality holding of Bank of America
dartmonkey Posted May 22, 2025 Posted May 22, 2025 1 hour ago, Xerxes said: There was a time not long ago (pre Covid), when FFH high risk investment in Eurobank was being compared to Berkshire sound quality holding of Bank of America I guess it's good that Watsa is not the Buffett of the North, after all. I think I'll take Meadow Foods, AGT and Recipe over Kraft, Heinz and Dairy Queen. Times change, and some of the old things we used to think were reliable may not be so reliable any more.
Marco Van Basten Posted May 22, 2025 Posted May 22, 2025 9 minutes ago, dartmonkey said: I guess it's good that Watsa is not the Buffett of the North, after all. I think I'll take Meadow Foods, AGT and Recipe over Kraft, Heinz and Dairy Queen. Times change, and some of the old things we used to think were reliable may not be so reliable any more. I got one word for you: Apple!
Viking Posted May 22, 2025 Posted May 22, 2025 (edited) 4 hours ago, TwoCitiesCapital said: Does this include the losses from pre-restructuring? Can't remember if the wipe out of commons occurred in 2014 or 2015 to know if Fairfax is including that in their calculation of the basis. Has certainly been a monster success story post-covid, but not sure how great it's been over the 10-year horizon once accounting for the initial wipeout of capital invested. With a cost basis for Fairfax of $1.19 billion, my guess is this includes the initial investment in Eurobank in Dec 2014 of $444 million that went up in smoke. What does the 10-year CAGR of 12.5% tell us? On its own, very little. It really matters only to investors who bought Fairfax back in 2014 (or earlier) and still hold their shares today. All of my shares in Fairfax were bought late in 2020. Do I care about what Eurobank's CAGR was for Fairfax from 2014 to 2020? No. What I care deeply about is what Eurobank’s CAGR for Fairfax was from 2020 to 2025. And it has been stellar. Sequence of returns matters. Eurobank is the poster child of how important this is for an investor (to understand). Yes, Eurobank sucked as an investment from 2014 to 2020 (Greece was in a depression). And it has absolutely rocked as an investment from 2021 to 2025. The Greek economy is doing well. Eurobank is exceptionally well managed. Despite the big move higher, the stock is cheap. And its prospects have never looked better. Edited May 22, 2025 by Viking
dartmonkey Posted May 22, 2025 Posted May 22, 2025 5 minutes ago, Marco Van Basten said: I got one word for you: Apple! Yeah, the way this has often been framed is even worse: Buffett chose Apple vs Watsa who chose Blackberry. Admittedly not Watsa's finest hour. But I think Apple, BAC and KraftHeinz belong in the same group: they may seem have seemed unassailable once, but a lot can change, and if I were a Berkshire shareholder, I would hate the BAC and KHC holdings and I would worry a lot about Apple. Where Watsa and Buffett probably agree, is buying Apple at 10 times earnings, with a great brand and opportunities for growth, was a great idea. Holding it now at 40 times earnings, with less opportunities for significant growth, is another thing, but that is part of the Buffett favourite holding period schtick. (Forever)
nwoodman Posted May 23, 2025 Posted May 23, 2025 (edited) Some quick notes on Meadow Foods. I had the pleasure of speaking with Raj at the Fairfax AGM, impressive guy. The team sounds flat out, but India is firmly on the radar as a long-term opportunity. I don't doubt this is another in the growing list of billion-dollar Fairfax subs. What struck me most wasn’t just the operational execution, but how Meadow fits into something larger. I don’t think Fairfax’s non-insurance subs are just opportunistic value plays anymore. There’s a theme emerging. I haven’t quite cracked the code, although I suspect many who post here have. There are some very big brains. Businesses like Meadow, AGT, and Recipe aren’t just stable; they serve essential human needs. Food, shelter, security. The bottom rungs of Maslow’s hierarchy. Even the pure commodity plays, like WEF and Foran, feel like they’ll still be around, compounding quietly long after I am posting to the great message board in the sky. Brian Dalton at Altius has spoken about the persistent mispricing of long-life assets, and I suspect Fairfax sees it too. Inflation protection? I suspect Fairfax sees real value in owning high-integrity businesses that are less disruptible by design. Industries where trust, physical scale, and embedded relationships still, and will, matter. In time, I am sure I will look back and realise Fairfax wasn’t just collecting cheap assets. They were laying the foundations for something more enduring: perhaps the building blocks for that 100-year business. Of course, there is always the possibility that they are just muddling on through Meadow Foods.pdf Edited May 23, 2025 by nwoodman
cwericb Posted May 23, 2025 Posted May 23, 2025 I find it interesting to look at the public face of companies held by Fairfax, it is kind of like putting a face to someone who you frequently have contact with but never meet in person. Then again, that's just me. Meadow Foods web site https://meadowfoods.co.uk/ Here's just a few more....... AGT Foods: https://www.agtfoods.com/ Eurobank: https://www.eurobank.gr/en/group Recipe: https://www.recipeunlimited.com/ Sleep Country: https://en.sleepcountry.ca/ Orla Mining: https://orlamining.com/ Peak/Bauer https://www.bauer.com/?srsltid=AfmBOopSScR0hT_DUAnsgIMZpXUH2kRDO_n5SdTVCP1GB0PS7S0dvrdQ
Viking Posted May 24, 2025 Posted May 24, 2025 (edited) On 5/22/2025 at 1:02 AM, glider3834 said: Fairfax lent John Keells (JKH) US $75M in convertible debentures to help build Colombo West Intl Container Terminal and they later exchanged these converts for an additional ~11.5% stake (approx US$150M mkt value ) in JKH The fully automated port build is now complete & up & running... @glider3834 , thanks for the update on John Keells. It motivated me to do an update myself... ---------- John Keells Holdings With a market value of around $300 million, John Keells Holdings (JKH) is a top 20 equity holding for Fairfax (about #18 as of today). JKH is the largest publicly traded conglomerate in Sri Lanka with an operating history of more than 150 years. The group has 7 business segments – leisure, property, transportation, consumer foods, retail and financial services. In Sri Lanka, Fairfax also owns 15% in JKH Group entity Nations Trust Bank and an 78% stake in general insurer Fairfirst. ---------- JKH corporate website: https://www.keells.com/investor-relations/ Corporate presentation February 2025: https://www.keells.com/resource/reports/investor-presentations/investor-presentation-Q3-2025.pdf ----------- A short review of Fairfax’s investment in JKH: Fairfax made their initial investment of $125 million in JKH in 2020 (for a 10.76% position). It appears Fairfax purchased more shares in 2021, increasing their position to about 13%. In June of 2022, JKH raised $75 million (convertible debentures) to help the company get through the economic/currency crisis and fund the construction of the Columbo West International (Container) Terminal (CWIT) in the port of Columbo. Fairfax purchased all debentures and converted them to stock in 2024 and 2025. Post conversion, Fairfax owned about 24.3% of JKH. In July 2024, JKH raised another $150 million in a rights offering to allow it to complete the large City of Dreams real estate project. Fairfax participated proportionately, which kept their ownership position in JKH at 24.3%. In October 2024 (when the rights offering closed), JKH did a 10-for-1 stock split. From 2020 to 2025, Fairfax invested a total of $261 million in JKH. The market value of their position is about $306 million. The total return is about $45 million or 17% (not including interest earned on convertible debentures). It is surprising that Fairfax's investment is up at all, given the size of the economic/currency crisis that hit the country in 2022. @glider3834 , as you pointed out, Fairfax was very opportunistic with its $75 million investment in 2022. This part of their investment is up about 100% (including currency). Importantly, JKH looks well positioned as an investment for Fairfax moving forward. ———— Comments from Prem about John Keells from Fairfax’s 2024AR. “Led by its outstanding Chairman and CEO Krishan Balendra, John Keells Holdings (JKH) is the largest listed conglomerate with over 150 years of history in Sri Lanka, with a significant presence and great record in leisure, consumer foods, retail, transportation, property and financial services and a great long-term record. In the middle of the external crisis faced by Sri Lanka, the company raised $75 million in equity capital, entirely provided by Fairfax in the form of convertible debentures, to fund the West Container terminal in the port of Colombo. Its construction has progressed well, and the first phase of operation is expected to commence in March 2025. In 2024, JKH raised $80 million through a rights issue for LKR 160 per share to fund the completion of the City of Dreams Sri Lanka (casino resorts). JKH is developing the resort in strategic partnership with Melco Resorts & Entertainment, a Hong Kong based gaming and entertainment company, the casino resort is expected to commence in mid-2025. Fairfax participated in the rights issue to the extent of its entitlement. Post conversion of the debentures in January 2025, Fairfax’s shareholding increased to 24.5%, making it the largest shareholder of the company. The Sri Lankan economy appears to have stabilized after severe macroeconomic turbulence with a GDP growth outlook of approximately 3.5% in 2025, primarily driven by the revival of tourism. External debt restructuring, IMF funding, and financial assistance from India have helped Sri Lanka come out of the crisis and rebuild its foreign exchange reserve, providing a much-needed buffer against external shocks. Both the Sri Lankan economy and JKH are poised to perform well going forward. Both the currency and the underlying stock have appreciated considerably since our investment. Fairfax is currently carrying the investment at $282 million against its market value of $331 million.” Prem Watsa – Fairfax 2024AR ———— Sri Lanka's economy grew 5% in 2024 in strong rebound from financial crisis https://www.reuters.com/markets/asia/sri-lankas-economy-grew-5-2024-rebounding-crisis-2025-03-18/ First fully automated terminal at Colombo Port commences operations https://youtu.be/tsmULl9SgjY?si=kGsklSgMETo4J9m2 ———— At February 28, 2025, Fairfax owned 24.31% of John Keells (from the corporate presentation linked above). Edited May 25, 2025 by Viking
glider3834 Posted May 26, 2025 Posted May 26, 2025 On 5/25/2025 at 9:12 AM, Viking said: @glider3834 , thanks for the update on John Keells. It motivated me to do an update myself... ---------- John Keells Holdings With a market value of around $300 million, John Keells Holdings (JKH) is a top 20 equity holding for Fairfax (about #18 as of today). JKH is the largest publicly traded conglomerate in Sri Lanka with an operating history of more than 150 years. The group has 7 business segments – leisure, property, transportation, consumer foods, retail and financial services. In Sri Lanka, Fairfax also owns 15% in JKH Group entity Nations Trust Bank and an 78% stake in general insurer Fairfirst. ---------- JKH corporate website: https://www.keells.com/investor-relations/ Corporate presentation February 2025: https://www.keells.com/resource/reports/investor-presentations/investor-presentation-Q3-2025.pdf ----------- A short review of Fairfax’s investment in JKH: Fairfax made their initial investment of $125 million in JKH in 2020 (for a 10.76% position). It appears Fairfax purchased more shares in 2021, increasing their position to about 13%. In June of 2022, JKH raised $75 million (convertible debentures) to help the company get through the economic/currency crisis and fund the construction of the Columbo West International (Container) Terminal (CWIT) in the port of Columbo. Fairfax purchased all debentures and converted them to stock in 2024 and 2025. Post conversion, Fairfax owned about 24.3% of JKH. In July 2024, JKH raised another $150 million in a rights offering to allow it to complete the large City of Dreams real estate project. Fairfax participated proportionately, which kept their ownership position in JKH at 24.3%. In October 2024 (when the rights offering closed), JKH did a 10-for-1 stock split. From 2020 to 2025, Fairfax invested a total of $261 million in JKH. The market value of their position is about $306 million. The total return is about $45 million or 17% (not including interest earned on convertible debentures). It is surprising that Fairfax's investment is up at all, given the size of the economic/currency crisis that hit the country in 2022. @glider3834 , as you pointed out, Fairfax was very opportunistic with its $75 million investment in 2022. This part of their investment is up about 100% (including currency). Importantly, JKH looks well positioned as an investment for Fairfax moving forward. ———— Comments from Prem about John Keells from Fairfax’s 2024AR. “Led by its outstanding Chairman and CEO Krishan Balendra, John Keells Holdings (JKH) is the largest listed conglomerate with over 150 years of history in Sri Lanka, with a significant presence and great record in leisure, consumer foods, retail, transportation, property and financial services and a great long-term record. In the middle of the external crisis faced by Sri Lanka, the company raised $75 million in equity capital, entirely provided by Fairfax in the form of convertible debentures, to fund the West Container terminal in the port of Colombo. Its construction has progressed well, and the first phase of operation is expected to commence in March 2025. In 2024, JKH raised $80 million through a rights issue for LKR 160 per share to fund the completion of the City of Dreams Sri Lanka (casino resorts). JKH is developing the resort in strategic partnership with Melco Resorts & Entertainment, a Hong Kong based gaming and entertainment company, the casino resort is expected to commence in mid-2025. Fairfax participated in the rights issue to the extent of its entitlement. Post conversion of the debentures in January 2025, Fairfax’s shareholding increased to 24.5%, making it the largest shareholder of the company. The Sri Lankan economy appears to have stabilized after severe macroeconomic turbulence with a GDP growth outlook of approximately 3.5% in 2025, primarily driven by the revival of tourism. External debt restructuring, IMF funding, and financial assistance from India have helped Sri Lanka come out of the crisis and rebuild its foreign exchange reserve, providing a much-needed buffer against external shocks. Both the Sri Lankan economy and JKH are poised to perform well going forward. Both the currency and the underlying stock have appreciated considerably since our investment. Fairfax is currently carrying the investment at $282 million against its market value of $331 million.” Prem Watsa – Fairfax 2024AR ———— Sri Lanka's economy grew 5% in 2024 in strong rebound from financial crisis https://www.reuters.com/markets/asia/sri-lankas-economy-grew-5-2024-rebounding-crisis-2025-03-18/ First fully automated terminal at Colombo Port commences operations https://youtu.be/tsmULl9SgjY?si=kGsklSgMETo4J9m2 ———— At February 28, 2025, Fairfax owned 24.31% of John Keells (from the corporate presentation linked above). Interesting one to watch thanks viking
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