Fairfax stock positions

[TwoCitiesCapital]

3 hours ago, dartmonkey said:

Shareholders definitely will be better off now that a portion of the proceeds from those debs are reinvested.  FFH was getting 1.75% interest, and pretty much any US treasury will yield ~5%, so that part is good.  The part that isn't good is that the whole $330m isn't being reinvested at the higher rate.  I don't love the idea of extending any more credit to BB, but if FFH is going to do it, they should at least demand market terms.  For 3-month debt that would be, what, perhaps ~8% or something instead of the 1.75% they actually accepted?  So, it looks to me like FFH is being shorted about $2m of interest over three months (and worse if it is extended to 6 months).

 

 

Forgoing $2m in interest is the part of the glass that is empty, but removing $180m of the $330m invested via bonds is a much bigger part of the glass with water in it. And if getting a good deal and paying a low interest rate for 3 more months is helpful for Blackberry and allowed FFH to actually reduce the 47m share position, that would be even greater. Anything to get farther away from this canine investment.

 

 It does kind of make you wonder why though. 

 

BlackBerry had plenty of cash at quarter end to retire all the bonds plus receivables incoming.. 

[Viking]

Not sure if this has been posted already… looks like Prem is elephant hunting. Am i reading this right that this is not Fairfax - but Prem on his own?
 

The partners on this proposed deal are interesting. Pierre Lasonde is a partner with Fairfax in Foran Mining. Kestenbaum is, of course, the CEO of Stelco. If you wanted to partner with stars, it would be difficult to find two better than Lassonde and Kestenbaum.

 

Here is a write up on Lassonde:

https://latinmines.com/pierre-lassonde/

 

—————

Pierre Lassonde ‘mystified’ by Teck choice of Glencore bid for coal unit

- https://www.theglobeandmail.com/business/article-pierre-lassonde-mystified-by-teck-choice-of-glencore-bid-for-coal-unit/

 

Veteran mining entrepreneur Pierre Lassonde said on Wednesday that he is “mystified” by Teck Resources’s decision to sell its coal unit to a Glencore-led consortium for $9-billion because his group bid the same price.

 

“We put together an offer that was very, very competitive, it was in the best interest of Teck shareholders, Canada … the employees,” Mr. Lassonde said in an interview.

“And it was a holistic solution with the same price tag.”

 

On Tuesday, Teck agreed to sell its steelmaking coal unit to the group led by Switzerland-based Glencore.
 

Mr. Lassonde said his consortium included Fairfax Financial Holdings founder Prem Watsa and Stelco Holding CEO Alan Kestenbaum, both in their individual capacities. Their offer was credible and comparable to what Teck’s board accepted from Glencore, he said.

 

Edited November 16, 2023 by Viking

[Viking]

What was the change in the value of Fairfax’s equity portfolio at the half-way mark in Q4 (to Nov 15)?

 

Fairfax’s equity portfolio (that I track) has a total value of about $16.9 billion at Nov 15, 2023 (midway through Q4). This is an increase of about $576 million (pre-tax) or 3.5% from September 30 to November 15, 2023. The increase in the quarter works out to about $25/share. My Excel tracking file is attached at the bottom of this post for those who are interested.

 

In the first 6 weeks of Q4, currency has been a bit of a tailwind.

 

Please note, I include holdings like the FFH-TRS position in the mark to market bucket and at its notional value (which was $1.765 billion at Nov 15). I also include debentures and warrants that are in the money in this bucket.

 

To state the obvious, my tracker portfolio is not an exact match to Fairfax’s actual holdings. It also does not capture changes Fairfax has made to its portfolio during the quarter. As a result, my tracker portfolio is useful only as a tool to understand the probable directional movement in Fairfax’s equity portfolio (and not the precise change).

 

  

Split of total holdings by accounting treatment

 

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

 

 

Split of total gains (losses) by accounting treatment

• The total change is increase of $576 million = $25/share
• The mark to market change is increase of $108 million = $5/share. Only changes in this bucket of holdings will show up in ‘net gains (losses) on investments’ (along with changes in the value of the fixed income portfolio) when Fairfax reports results each quarter.

 

What were the big movers in the equity portfolio?

• Eurobank was up $202 million and it is now a $2 billion position for Fairfax.
• Thomas Cook India was the star performer in Q3 and continued its strong performance 6 weeks into Q4, up $163 million. With a market value of $645 million, TCI is now Fairfax’s 5th largest equity position. 
• The FFH total return swap position (giving exposure to 1.96 million Fairfax shares) continues to perform exceptionally well. This position is up another $157 million or more than $1 billion since it was initiated in late 2020.

 

Below is a copy of my Excel spreadsheet (next 2 pages) if you want a closer look.

 

For Associate and Consolidated holdings, the excess of fair value to carrying value is about $874 million or $38/share (pre-tax). Book value at Fairfax is understated by about this amount (less the tax impact). What is the split?

• Associates:        $505 million = $22/share
• Consolidated:    $369 million = $16/share

Equity Tracker Spreadsheet explained:

 

The summary below attempts to track all equity holdings at Fairfax. Each quarter we update the spreadsheet to capture any ‘new news:’ purchases and sales. 

 

We have separated holdings by accounting treatment:

• Mark to market
• Associates – Equity accounted
• Consolidated
• Other Holdings – derivatives (total return swaps), debentures and warrants

We come up with the value of each holding by multiplying the share price by the number of shares. Are holdings are tracked in US$ so non-US holdings have their values adjusted for currency. 

 

Important: the list is not complete. Some information we only get once per year when Fairfax published their annual report. Fairfax makes changes to their portfolio each quarter. 

 

 

 

 

Fairfax Nov 15 2023.xlsx

Edited November 16, 2023 by Viking

[nwoodman]

Minor upgrade to Eurobank from Nida Iqbal at Morgan Stanley on the back of stronger forward guidance.

PT €2.01

• A strong balance sheet means that Eurobank is one of the the most resilient Greek banks in our coverage. We expect performing loans to grow at a ~5% CAGR in 2023-25.
• We forecast NIMs to decline ~10bps in 2024 followed by a 18bps contraction in 2025, as we expect the rate-cutting cycle to begin in 2Q24, thus driving asset yields lower.
• 3Q23 NPE ratio stood at 5.0%; we forecast it to reach 3.9% by 2025.
• However, we remain Equal-weight on the shares as we see a more defensive deposit beta in NBG in the coming quarters.

[UK]

13 hours ago, Viking said:

Not sure if this has been posted already… looks like Prem is elephant hunting. Am i reading this right that this is not Fairfax - but Prem on his own?
 

The partners on this proposed deal are interesting. Pierre Lasonde is a partner with Fairfax in Foran Mining. Kestenbaum is, of course, the CEO of Stelco. If you wanted to partner with stars, it would be difficult to find two better than Lassonde and Kestenbaum.

 

I saw this and thought it was strange, but maybe Prem and Alan were included more like to give this bid some extra weight because of their local status or something?

[Xerxes]

I seem to have not seen this (missed this), Stelco declared a $3 special dividend. And the stock largely bottomed in the low $30s. 
 

 

[Spekulatius]

On 11/7/2023 at 4:10 PM, gfp said:

Everyone hates commercial real estate and Kennedy Wilson is at a new 52 week low.  Bill McMorrow bought $1.23 million worth of KW stock in the open market yesterday.  Maybe Bill needs to bring over some Brookfield real estate guys to put some spin on things!?  

 

https://www.sec.gov/Archives/edgar/data/1408100/000140810023000142/xslF345X03/wk-form4_1699311214.xml

 

https://ir.kennedywilson.com/~/media/Files/K/Kennedy-Wilson-IR-V2/documents/3q-2023-supplemental-and-release.pdf

 

https://ir.kennedywilson.com/~/media/Files/K/Kennedy-Wilson-IR-V2/reports-and-presentations/presentations/q3-2023-investor-presentation.pdf

 

Does KW look good to you? It looks terrible with all that leverage and all those development projects. I had some unsecured bonds for a while and even felt uncomfortable holding them so ditched them for a small profit.

[This2ShallPass]

On 11/14/2023 at 11:17 AM, StubbleJumper said:

FFH was getting 1.75% interest, and pretty much any US treasury will yield ~5%, so that part is good.  The part that isn't good is that the whole $330m isn't being reinvested at the higher rate.

This seems like something is in the works and to help BB through that period, I wouldn't read too much into it. If they still had hope for BB, it would have been extended for a couple more years.

 

John Chen's contract was not extended and no one does a 3 month extension + if needed (i.e. deal doesn't close on time) another 3 months. All signs point to a sale. The sale price won't be >$6 or they would have wanted to extend full amount and it must be for a small premium to their current price.

 

You heard it here first:)

[Haryana]

G&M on FDGE

 

https://www.theglobeandmail.com/business/article-farmers-edge-in-go-private-talks-for-tiny-fraction-of-ipo-price/

 

 

 

 

[UK]

https://www.thehindubusinessline.com/companies/fairfax-to-sell-68-stake-in-thomas-cook-india/article67587453.ece

[glider3834]

https://travel.economictimes.indiatimes.com/news/travel-agents/fairbridge-capital-reduces-stake-in-thomas-cook-india-as-company-sells-8-5-stake-via-ofs/105731200

[gfp]

For those interested in still following along with how SeaSpan / Atlas / Poseidon are developing, here is a press release on the order of their first car/truck carrier, a dual fuel LNG or ammonia/methane new build to be leased to Hyundai Glovis.

 

https://ir.atlascorporation.com/2023-12-05-Seaspan-Corporation-enters-new-market-segment-with-strategic-order-of-new-dual-fuel-LNG-Pure-Car-and-Truck-Carrier-vessels

[Viking]

Below is an update to a previous post I did on Thomas Cook India. A question for board members: will the Dec 1 sale of TCIL shares result in Fairfax marking up its carrying value to the December 1 sale price (of INR 146.70 or US$1.76/share)? Based on @glider3834 ‘s post after mine, it appears the answer is ‘no.’ Something to watch when Fairfax reports YE results.

-----------

Thomas Cook (India) Limited (TCIL) has had a pretty spectacular year so far in 2023. YTD, shares of TCI have increased in value by 116%. It appears people in India are travelling again.

 

 

Who is TCIL?

 

TCIL is the leading omnichannel travel company in India offering a broad spectrum of services including Foreign Exchange, Corporate Travel, MICE, Leisure Travel, Value Added Services and Visa Services.

 

Company presentation: business results to Sept 30, 2023 (scroll down after clicking link)

• https://resources.thomascook.in/downloads/SEINTIMATIONSinvestorpresenation.pdf?_gl=1*1tufk2e*_ga*NjU3NjA5NzI4LjE3MDE3NTMyMzY.*_ga_FKZBDJSK02*MTcwMTc1MzIzNi4xLjEuMTcwMTc1MzM0Mi41OS4wLjA.

How much of TCIL does Fairfax own?

 

On December 1, 2023, Fairfax sold 40 million shares of TCIL for proceeds of $67 million. After this sale, Fairfax continues to own 300.3 million shares, or 63.8%, of TCIL. (This assumes TCIL did not buy back any of the shares Fairfax sold.)

 

 

Fairfax’s ownership position in TCIL had a market value of $554 million on Dec 4, 2023. TCIL is the 7th largest equity holding for Fairfax.

 

 

Accounting: Market Value (MV) and Carrying Value (CV)

 

Given Fairfax owns more than 50% of TCIL, from an accounting perspective, TCIL is valued in Fairfax’s financial statements at carrying value and not market value.

 

At Dec 1, 2023, the excess of market value over carrying value was $339 million (pre-tax). Fairfax is sitting on a significant unrealized gain on TCIL that is not captured in its current book value.

 

 

How much did Fairfax make on its recent sale of TCIL shares?

 

On December 1, 2023, Fairfax sold 40 million shares of TC for $67 million, or $1.67/share. Carrying value of TCI shares at September 30 was $0.629/share ($214 million / 340.3 million shares). Fairfax should book a benefit of about $42 million when it reports Q4 results (given Fairfax is retaining control of TCIL, I am not sure how this benefit will flow through Fairfax’s financials). 

 

 

Background on Fairfax’s additional investment in TCIL in 2021

 

In 2021, TCIL needed some cash to help it get through Covid and Fairfax stepped up with a $60 million preferred share investment. At the time, I am sure a lot of Fairfax investors questioned what the company was doing - was this an example of Fairfax throwing good money after bad? Of doubling down yet again on a bad business? Investors who thought this were wrong. Very wrong.

 

On its $60 million additional investment in TCIL in 2021, Fairfax is up about $104 million or 173% over the past 2.5 years. That is a terrific return.

 

 

It was an opportunistic deal for Fairfax. But also, much needed at the time by TCIL.

 

“During 2021, Thomas Cook India raised $60 million from Fairfax through optionally convertible redeemable preference shares with a 10.7% dividend yield, a seven-year tenure and an option to convert into ordinary shares of the company at 47.30 rupees per share within 18 months from the date of issuance. Thomas Cook India chose to convert the entire amount over two tranches resulting in Fairfax’s ownership increasing to 73.3%.” Fairfax 2022AR

 

The big picture

 

The financial benefit for Fairfax of this investment made during Covid goes well beyond the gains from the $60 million capital infusion into TCIL. The investment gave TCIL valuable financial breathing room during Covid and allowed them to right-size their operations - TCI aggressively cut costs. With its travel businesses rebounding strongly in 2023, the much lower cost base is now spiking profits at TCIL.

 

“Thomas Cook India implemented extensive cost saving initiatives combined with enhanced automation to mitigate the drop in business and improve profitability as normalcy returns. We are pleased to note that total costs were down 40% compared to pre-pandemic levels, while a permanent saving of 20% in overheads compared to the pre-pandemic levels is envisaged.”

Prem Watsa – Fairfax 2022AR

 

Covid also caused Sterling Resorts, owned by TCIL, to lower costs and re-imagine its business model. The results at this subsidiary at TCI have been extraordinary and are another reason profit is spiking at TCIL in 2023.

 

Comments from Prem about Sterling Resorts from the 2021AR.

 

“You will recall from my letter in 2014 that Thomas Cook acquired Sterling Resorts in 2014, mainly because of Ramesh Ramanathan, the CEO of the company. As you can imagine, Sterling faced difficult times in the last two years during the COVID-19-inspired lockdowns. Ramesh did a remarkable job in managing cash flow, allowing the company to stay self-sufficient throughout this period. Also, Ramesh used this time to reorient Sterling’s business model and transform it into a holiday experience company.” Prem Watsa – Fairfax 2021AR

 

Comments from Prem about Sterling Resorts from the 2022AR.

 

“Sterling Resorts, a subsidiary of Thomas Cook India, reported its best ever results, thriving as it remained a premier leisure hospitality brand in India with 39 resorts, 37 destinations and more than 2,300 rooms besides offering vacation time share. You will recall that my letter last year reported on the leadership transition at Sterling, and we are happy to report the smooth transition from Ramesh Ramanathan to Vikram Lalvani, with excellent results achieved at Sterling during the year. Under Vikram’s leadership, Sterling emerged out of two years of pandemic with a revival in the resort business in 2022 surpassing the performance of the pre-pandemic period, despite some impact due to the third wave of COVID in Q1, reporting 18% growth in revenue over the year 2019 and 21% over 2021. Its EBITDA of $15 million in 2022 is over fifteen times the $1 million it reported in 2019, and it grew 66% over 2021 on a normalised basis. The operating free cash flow doubled during the period. It ended 2022 with surplus cash and investments of $11 million besides achieving debt reduction of $4 million during the year. Sterling is focused on scaling the resort business by increasing non-member occupancies, boosting revenue from room rates and increasing food and beverage sales. Non-profitable resorts are being dropped from the portfolio, alongside a decreased focus on volume in favour of quality. With the Sterling experience getting appreciation from non-members, the focus is going to be on the quality of growth and enhancing the brand experience at the same time.” Prem Watsa – Fairfax 2022AR

 

Fairfax demonstrates it is a very good partner

 

TCIL is good example of a Fairfax equity holding that was negatively impacted by Covid (BIAL and Recipe are two other Fairfax holdings that were also severely affected by Covid). Fairfax supported the company when times were tough. TCIL got to work and has emerged today stronger (and more profitable) than ever. Fairfax shareholders are now reaping the reward.

 

An earnings turnaround at equity holdings negatively impacted by Covid is another reason why reported earnings at Fairfax continues to ‘surprise’ to the upside. A headwind to reported earnings for Fairfax in 2020 and 2021 has now become a tailwind in 2023. 

 

Comments from Prem about Thomas Cook India from the 2022AR.

 

“We are happy to note a substantial recovery in Thomas Cook India’s businesses during 2022. With excellent leadership by Madhavan Menon, Thomas Cook India exited the year reporting a 90% recovery in its forex business, 79% recovery in its outbound travel business and 84% recovery in its inbound travel business. This is following a difficult year in 2020 when COVID-19 caused its travel business to decline by 90% and its forex business to decline by 75%, and an incipient recovery of 53% in forex business and 27% in travel business in 2021. Business recovery combined with cost reductions resulted in its results improving – a pre-tax loss of $2 million in 2022 compared to a pre-tax loss of $46 million in 2021.” Prem Watsa – Fairfax 2022AR

 

Below is a brief history of Fairfax’s investment in Thomas Cook India:

 

TCIL was Fairfax’s first large purchase in India. In 2012, Fairfax purchased 87.1% for $173 million. TCIL subsequently made three large acquisitions to round out its portfolio of assets:

• Feb 2014: Sterling Resorts for $140 million plus shares (Fairfax invested $81 million).
• Aug 2015: Kuoni India and Kuoni Hong Kong for $64 million
• March 2019: Digiphoto Entertainment Imaging (51% interest) for $21 million.

Comments from Prem about Thomas Cook India from the 2020AR.

 

“As you will recall, our first major acquisition in India was the purchase of a 77% interest (later reduced to 67%) in Thomas Cook India, led by Madhavan Menon. Thomas Cook, first set up in India in 1881, is the leading integrated travel and travel-related financial services company in India, offering, through its 4,700 employees, a broad spectrum of services that include foreign exchange, corporate travel, leisure travel, insurance, visa and passport services and e-business. With the 2015 purchase of Kuoni’s Indian travel business and then its operations all over the world, Thomas Cook India is today one of the largest high-end travel service provider networks headquartered in the Asia-Pacific region. With the 2019 purchase of Digiphoto Entertainment Imaging (‘‘DEI’’), Thomas Cook has emerged as a complete travel solutions company. DEI provides imaging solutions for the entertainment industry, giving Thomas Cook India an opportunity to package DEI products with Thomas Cook Tours. Established in 2004, DEI has offices throughout the Far East, as well as in the Middle East, India and the U.S., and has a network of 130 entertainment partners.” Fairfax 2020AR

 

The IKYA/Quess Home Run

 

In 2012, Fairfax designated TCIL as the vehicle through which it was going to be investing in India. In May of 2013, TCIL purchased a 77.3% interest in IKYA (renamed Quess) for $47 million. In 2017, TCIL sold 5.4% of Quess for $97 million. In December 2019, TCIL spun out all of Quess. Fairfax currently owns of 35% of Quess. IKYA/Quess has been a very good investment in India for Fairfax.

 

Strategic Shift

 

Modi’s election in 2014 caused Fairfax to shift its strategy in India. Fairfax wanted to accelerate its investments and TCIL’s structure was too limiting. In 2015, Fairfax India was born and it was decided this platform would house all of Fairfax’s future non-insurance investments in India. However, legacy investments like TCIL and Quess would continue to be owned directly by Fairfax. Fairfax also owns Digit directly - its insurance vehicle in India.

————

A short summary of Fairfax’s ownership of TCIL shares

 

Edited December 6, 2023 by Viking

[glider3834]

6 hours ago, Viking said:

Below is an update to a previous post I did on Thomas Cook India. A question for board members: will the Dec 1 sale of TCIL shares result in Fairfax marking up its carrying value to the December 1 sale price (of INR 146.70 or US$1.76/share)? If so, this would result in Fairfax booking a gain of $331 million when it reports Q4 earnings.

-----------

Thomas Cook (India) Limited (TCIL) has had a pretty spectacular year so far in 2023. YTD, shares of TCI have increased in value by 116%. It appears people in India are travelling again.

 

 

Who is TCIL?

 

TCIL is the leading omnichannel travel company in India offering a broad spectrum of services including Foreign Exchange, Corporate Travel, MICE, Leisure Travel, Value Added Services and Visa Services.

 

Company presentation: business results to Sept 30, 2023 (scroll down after clicking link)

• https://resources.thomascook.in/downloads/SEINTIMATIONSinvestorpresenation.pdf?_gl=1*1tufk2e*_ga*NjU3NjA5NzI4LjE3MDE3NTMyMzY.*_ga_FKZBDJSK02*MTcwMTc1MzIzNi4xLjEuMTcwMTc1MzM0Mi41OS4wLjA.

How much of TCIL does Fairfax own?

 

On December 1, 2023, Fairfax sold 40 million shares of TCIL for proceeds of $67 million. After this sale, Fairfax continues to own 300.3 million shares, or 63.8%, of TCIL. (This assumes TCIL did not buy back any of the shares Fairfax sold.)

 

 

Fairfax’s ownership position in TCIL had a market value of $554 million on Dec 4, 2023. TCIL is the 7th largest equity holding for Fairfax.

 

 

Accounting: Market Value (MV) and Carrying Value (CV)

 

Given Fairfax owns more than 50% of TCIL, from an accounting perspective, TCIL is valued in Fairfax’s financial statements at carrying value and not market value.

 

At Dec 1, 2023, the excess of market value over carrying value was $339 million (pre-tax). Fairfax is sitting on a significant unrealized gain on TCIL that is not captured in its current book value.

 

I wonder if the Dec 1 sale of shares will result in Fairfax marking up its carrying value to the December 1 sale price (of INR 146.70 or US$1.76/share)? If so, this would result in Fairfax booking a gain of $331 million when it reports Q4 earnings.

 

 

How much did Fairfax make on its recent sale of TCIL shares?

 

On December 1, 2023, Fairfax sold 40 million shares of TC for $67 million, or $1.67/share. Carrying value of TCI shares at September 30 was $0.629/share ($214 million / 340.3 million shares). Fairfax should book a realized gain of about $42 million when it reports Q4 results.

 

 

Background on Fairfax’s additional investment in TCIL in 2021

 

In 2021, TCIL needed some cash to help it get through Covid and Fairfax stepped up with a $60 million preferred share investment. At the time, I am sure a lot of Fairfax investors questioned what the company was doing - was this an example of Fairfax throwing good money after bad? Of doubling down yet again on a bad business? Investors who thought this were wrong. Very wrong.

 

On its $60 million additional investment in TCIL in 2021, Fairfax is up about $104 million or 173% over the past 2.5 years. That is a terrific return.

 

 

It was an opportunistic deal for Fairfax. But also, much needed at the time by TCIL.

 

“During 2021, Thomas Cook India raised $60 million from Fairfax through optionally convertible redeemable preference shares with a 10.7% dividend yield, a seven-year tenure and an option to convert into ordinary shares of the company at 47.30 rupees per share within 18 months from the date of issuance. Thomas Cook India chose to convert the entire amount over two tranches resulting in Fairfax’s ownership increasing to 73.3%.” Fairfax 2022AR

 

The big picture

 

The financial benefit for Fairfax of this investment made during Covid goes well beyond the gains from the $60 million capital infusion into TCIL. The investment gave TCIL valuable financial breathing room during Covid and allowed them to right-size their operations - TCI aggressively cut costs. With its travel businesses rebounding strongly in 2023, the much lower cost base is now spiking profits at TCIL.

 

“Thomas Cook India implemented extensive cost saving initiatives combined with enhanced automation to mitigate the drop in business and improve profitability as normalcy returns. We are pleased to note that total costs were down 40% compared to pre-pandemic levels, while a permanent saving of 20% in overheads compared to the pre-pandemic levels is envisaged.”

Prem Watsa – Fairfax 2022AR

 

Covid also caused Sterling Resorts, owned by TCIL, to lower costs and re-imagine its business model. The results at this subsidiary at TCI have been extraordinary and are another reason profit is spiking at TCIL in 2023.

 

Comments from Prem about Sterling Resorts from the 2021AR.

 

“You will recall from my letter in 2014 that Thomas Cook acquired Sterling Resorts in 2014, mainly because of Ramesh Ramanathan, the CEO of the company. As you can imagine, Sterling faced difficult times in the last two years during the COVID-19-inspired lockdowns. Ramesh did a remarkable job in managing cash flow, allowing the company to stay self-sufficient throughout this period. Also, Ramesh used this time to reorient Sterling’s business model and transform it into a holiday experience company.” Prem Watsa – Fairfax 2021AR

 

Comments from Prem about Sterling Resorts from the 2022AR.

 

“Sterling Resorts, a subsidiary of Thomas Cook India, reported its best ever results, thriving as it remained a premier leisure hospitality brand in India with 39 resorts, 37 destinations and more than 2,300 rooms besides offering vacation time share. You will recall that my letter last year reported on the leadership transition at Sterling, and we are happy to report the smooth transition from Ramesh Ramanathan to Vikram Lalvani, with excellent results achieved at Sterling during the year. Under Vikram’s leadership, Sterling emerged out of two years of pandemic with a revival in the resort business in 2022 surpassing the performance of the pre-pandemic period, despite some impact due to the third wave of COVID in Q1, reporting 18% growth in revenue over the year 2019 and 21% over 2021. Its EBITDA of $15 million in 2022 is over fifteen times the $1 million it reported in 2019, and it grew 66% over 2021 on a normalised basis. The operating free cash flow doubled during the period. It ended 2022 with surplus cash and investments of $11 million besides achieving debt reduction of $4 million during the year. Sterling is focused on scaling the resort business by increasing non-member occupancies, boosting revenue from room rates and increasing food and beverage sales. Non-profitable resorts are being dropped from the portfolio, alongside a decreased focus on volume in favour of quality. With the Sterling experience getting appreciation from non-members, the focus is going to be on the quality of growth and enhancing the brand experience at the same time.” Prem Watsa – Fairfax 2022AR

 

Fairfax demonstrates it is a very good partner

 

TCIL is good example of a Fairfax equity holding that was negatively impacted by Covid (BIAL and Recipe are two other Fairfax holdings that were also severely affected by Covid). Fairfax supported the company when times were tough. TCIL got to work and has emerged today stronger (and more profitable) than ever. Fairfax shareholders are now reaping the reward.

 

An earnings turnaround at equity holdings negatively impacted by Covid is another reason why reported earnings at Fairfax continues to ‘surprise’ to the upside. A headwind to reported earnings for Fairfax in 2020 and 2021 has now become a tailwind in 2023. 

 

Comments from Prem about Thomas Cook India from the 2022AR.

 

“We are happy to note a substantial recovery in Thomas Cook India’s businesses during 2022. With excellent leadership by Madhavan Menon, Thomas Cook India exited the year reporting a 90% recovery in its forex business, 79% recovery in its outbound travel business and 84% recovery in its inbound travel business. This is following a difficult year in 2020 when COVID-19 caused its travel business to decline by 90% and its forex business to decline by 75%, and an incipient recovery of 53% in forex business and 27% in travel business in 2021. Business recovery combined with cost reductions resulted in its results improving – a pre-tax loss of $2 million in 2022 compared to a pre-tax loss of $46 million in 2021.” Prem Watsa – Fairfax 2022AR

 

Below is a brief history of Fairfax’s investment in Thomas Cook India:

 

TCIL was Fairfax’s first large purchase in India. In 2012, Fairfax purchased 87.1% for $173 million. TCIL subsequently made three large acquisitions to round out its portfolio of assets:

• Feb 2014: Sterling Resorts for $140 million plus shares (Fairfax invested $81 million).
• Aug 2015: Kuoni India and Kuoni Hong Kong for $64 million
• March 2019: Digiphoto Entertainment Imaging (51% interest) for $21 million.

Comments from Prem about Thomas Cook India from the 2020AR.

 

“As you will recall, our first major acquisition in India was the purchase of a 77% interest (later reduced to 67%) in Thomas Cook India, led by Madhavan Menon. Thomas Cook, first set up in India in 1881, is the leading integrated travel and travel-related financial services company in India, offering, through its 4,700 employees, a broad spectrum of services that include foreign exchange, corporate travel, leisure travel, insurance, visa and passport services and e-business. With the 2015 purchase of Kuoni’s Indian travel business and then its operations all over the world, Thomas Cook India is today one of the largest high-end travel service provider networks headquartered in the Asia-Pacific region. With the 2019 purchase of Digiphoto Entertainment Imaging (‘‘DEI’’), Thomas Cook has emerged as a complete travel solutions company. DEI provides imaging solutions for the entertainment industry, giving Thomas Cook India an opportunity to package DEI products with Thomas Cook Tours. Established in 2004, DEI has offices throughout the Far East, as well as in the Middle East, India and the U.S., and has a network of 130 entertainment partners.” Fairfax 2020AR

 

The IKYA/Quess Home Run

 

In 2012, Fairfax designated TCIL as the vehicle through which it was going to be investing in India. In May of 2013, TCIL purchased a 77.3% interest in IKYA (renamed Quess) for $47 million. In 2017, TCIL sold 5.4% of Quess for $97 million. In December 2019, TCIL spun out all of Quess. Fairfax currently owns of 35% of Quess. IKYA/Quess has been a very good investment in India for Fairfax.

 

Strategic Shift

 

Modi’s election in 2014 caused Fairfax to shift its strategy in India. Fairfax wanted to accelerate its investments and TCIL’s structure was too limiting. In 2015, Fairfax India was born and it was decided this platform would house all of Fairfax’s future non-insurance investments in India. However, legacy investments like TCIL and Quess would continue to be owned directly by Fairfax. Fairfax also owns Digit directly - its insurance vehicle in India.

————

A short summary of Fairfax’s ownership of TCIL shares

 

viking I think this will be an equity adjustment transaction for Fairfax based on any difference bw fair value & carrying value of the % interest sold to NCI(assuming I am reading IFRS guidance below correctly) & so with no earnings statement impact 

https://www.grantthornton.global/globalassets/1.-member-firms/global/insights/article-pdfs/2017/ifrs-10-guide-under-control.pdf

I believe Fairfax expect a mark up gain on their existing GIG interest when they close as they are acquiring control, but here Thomas Cook was already a controlled sub before & after this transaction.

 

Edited December 5, 2023 by glider3834

[Viking]

1 hour ago, glider3834 said:

viking I think this will be an equity adjustment transaction for Fairfax based on any difference bw fair value & carrying value of the % interest sold to NCI(assuming I am reading IFRS guidance below correctly) & so with no earnings statement impact 

https://www.grantthornton.global/globalassets/1.-member-firms/global/insights/article-pdfs/2017/ifrs-10-guide-under-control.pdf

I believe Fairfax expect a mark up gain on their existing GIG interest when they close as they are acquiring control, but here Thomas Cook was already a controlled sub before & after this transaction.

 

@glider3834 thanks for posting the information. I am going to update my original post to reflect what is contained here. And then we can see if we learn anything new when Fairfax reports YE results. I appreciate the prompt response  

[glider3834]

14 minutes ago, Viking said:

@glider3834 thanks for posting the information. I am going to update my original post to reflect what is contained here. And then we can see if we learn anything new when Fairfax reports YE results. I appreciate the prompt response  

[SafetyinNumbers]

55 minutes ago, glider3834 said:

if I understand the IFRS reg correctly, book value would go up by about ~$48m with the balance credited to NCI. 
 

Does that look right?

Edited December 6, 2023 by SafetyinNumbers

[glider3834]

51 minutes ago, SafetyinNumbers said:

if I understand the IFRS reg correctly, book value would go up by about ~$48m with the balance credited to NCI. 
 

Does that look right?

thats close to my guesstimate  - I got $42M or so - there may also be tax $ impact  - I guess we will find out all numbers when Q4 results are out

 

 

[UK]

https://www.bloomberg.com/news/articles/2023-12-11/blackberry-won-t-spin-off-iot-unit-names-john-giamatteo-ceo?srnd=premium-europe

[treasurehunt]

Fairfax acquires another 2.5 million shares of Orla Mining.

https://www.fairfax.ca/press-releases/fairfax-announces-acquisition-of-additional-orla-shares-2023-12-11/

[Xerxes]

54 minutes ago, treasurehunt said:

Fairfax acquires another 2.5 million shares of Orla Mining.

https://www.fairfax.ca/press-releases/fairfax-announces-acquisition-of-additional-orla-shares-2023-12-11/

funny how sometimes there is a press release for completely inconsequential dollar amount invested. Other times there is nothing for very large investments. 

[Hoodlum]

1 hour ago, Xerxes said:

funny how sometimes there is a press release for completely inconsequential dollar amount invested. Other times there is nothing for very large investments. 

 

Fairfax passed the 10% ownership threshold in Canada for reporting and had to issue a press release.

[Haryana]

https://www.msn.com/en-in/sports/cricket/virat-kohli-most-searched-cricketer-of-all-time-as-google-completes-25-years/ar-AA1ln9Qy

Virat Kohli most searched cricketer of all time as Google completes 25 years

He is the brand ambassador of Digit Insurance in India. He and his celebrity wife are also personally invested in company.

 

https://www.facebook.com/virat.kohli/videos/being-digit-general-insurance-brand-ambassador-customer-and-investor-im-proud-to/1687471911593420/

 

[srtadimeti]

Fairfax India acquires additional 7% stake in Bengaluru airport - Mint https://www.livemint.com/companies/news/fairfax-india-acquires-additional-7-stake-in-bengaluru-airport-11702451411533.html

[dartmonkey]

Fairfax India acquires additional 7% stake in Bengaluru airport -

 

This 7% stake, for $175m, was at exactly the same valuation as the 3% stake they bought from in June: https://www.globenewswire.com/en/news-release/2023/06/21/2692532/0/en/Fairfax-India-Completes-Acquisition-of-an-Additional-3-Interest-in-Bangalore-International-Airport-Limited.html. It is because they actually agreed to this before June, but the second step was conditional on the airport hitting some additional benchmarks. From the June PR:

 

As previously announced, Fairfax India, through its wholly-owned subsidiary, has also agreed to acquire an additional 7% equity interest in BIAL from SFS for additional consideration of $175 million, subject to the satisfaction of certain performance conditions by BIAL and other closing conditions, which are expected to be tested subsequent to October 31, 2023.

 

There's still the question of dilution - in the annual report, they said they had a 54% stake, but that that they really only owned 49%, after dilution. I don't know what that dilution represents - employee stock options? convertible preferred shares? something else? - but if it is still present, that would mean they now own 64% minus 5% from the effects of the dilution, so 59%. Maybe we'll find out when the dust settles after the IPO eventually goes ahead.