Fairfax stock positions

[glider3834]

On 3/6/2024 at 5:28 AM, SafetyinNumbers said:

 

They also own Strathacona (SCR.TO) based on disclosure on the conference call that there was a mark-to-market loss on a Waterous LP investment. SCR is closer to a 20% FCF yield at $80 oil with capital return expected to start in H2 following debt reduction. Looking forward to seeing the annual report to determine how much they indirectly own. Wouldn't shock me if its a $300m+ position.

will check this out thanks

[SafetyinNumbers]

5 hours ago, glider3834 said:

will check this out thanks

SCR management is trying to help! They put out its reserves today and included a 4 page letter to accompany it explaining how quickly and accretively they have grown since Waterous took over in 2017 which is also presumably when FFH made its investment.

 

https://www.strathconaresources.com/wp-content/uploads/2024/03/2023-Reserves-Overview_Final-1.pdf

 

i thought this table was particularly interesting from a comp valuation basis. They show it trading less than half of NAV. I can see this management’s approach to capital allocation and investor communication eventually get a premium multiple. 

 

 

[glider3834]

56 minutes ago, SafetyinNumbers said:

SCR management is trying to help! They put out its reserves today and included a 4 page letter to accompany it explaining how quickly and accretively they have grown since Waterous took over in 2017 which is also presumably when FFH made its investment.

 

https://www.strathconaresources.com/wp-content/uploads/2024/03/2023-Reserves-Overview_Final-1.pdf

 

i thought this table was particularly interesting from a comp valuation basis. They show it trading less than half of NAV. I can see this management’s approach to capital allocation and investor communication eventually get a premium multiple. 

 

 

interesting

[glider3834]

8 hours ago, SafetyinNumbers said:

Any sector that doesn’t screen well for quants i.e. not quality, is pretty cheap I think. I like SCR in particular because Waterous is incentivized to get the stock up to do accretive acquisitions. Right now, it’s really hard for heuristic investors to own SCR but If they execute the plan, they start ticking boxes which will increase the number of potential buyers. The share price is just supply and demand after all. 
 

The dividend announcement will help in three ways. In energy, investors want debt/cash flow < 1x, they want a capital return policy and they want liquidity. The dividend ticks 1 and 2. The dividend should attract yield investors who don’t mind buying on upticks providing multiple expansion and liquidity. 
 

With a higher share price, SCR will be able to make accretive acquisitions and extend the tax shelter beyond 2026. This will also increase liquidity and give SCR a chance to get into the S&P/TSX. That’s the plan from what I can tell but we’ll see if it actually works or if buying shows up in anticipation of the dividend announcement closer to the date. I think six months away is too much for event driven investors. That are a lot of places to put money to work these days. 

https://www.bnnbloomberg.ca/investment-banker-turned-oil-tycoon-takes-canada-energy-patch-by-storm-1.2022426?taid=65a67416a212d8000144012c&utm_campaign=trueAnthem+Manual&utm_medium=trueAnthem&utm_source=twitter

[petec]

Does the dividend go into the partnership and get reinvested somehow, or does it come to FFH?

[SafetyinNumbers]

36 minutes ago, petec said:

Does the dividend go into the partnership and get reinvested somehow, or does it come to FFH?

 

I assume when they start paying a dividend it will get paid out to the LPs after any related fees but I'm not 100% sure. If they DRIPed it, they would take it private again within a year at these prices

Edited March 12 by SafetyinNumbers

[petec]

On 3/12/2024 at 5:54 PM, SafetyinNumbers said:

 

I assume when they start paying a dividend it will get paid out to the LPs after any related fees but I'm not 100% sure. If they DRIPed it, they would take it private again within a year at these prices

 

If Strathcona and Eurobank dividends are not included in guidance, that's quite a bump!

[Hoodlum]

Some interesting comments from Eurobank on how they plan to use Hellenic Bank for India and Middle East business, once they acquire the Majority stake.

 

https://www.cbn.com.cy/article/2024/3/14/764158/eurobank-plans-to-make-cyprus-an-eu-gateway-for-india-and-the-middle-east/

 

Quote

“Under the strategy we are designing and wish to implement, we believe that Cyprus can become the base for developing our operations and cooperation, as a group, with the dynamic economies of the Middle East and India,” said Karavias. “These are economies that in the next few years, the next decades, are expected to have very strong growth rates,” he said, adding that the aim was to turn Cyprus into the gateway for companies from the two countries to Europe.

 

Rep office opening in Bombay

As part of these plans, Eurobank is currently in the process of opening a rep office in Bombay, which will be headed by Eurobank Cyprus’ CEO Michalis Louis and will promote the group’s strategy.

To this end, Louis and Eurobank’s COO Stavros Ioannou visited Saudi Arabia and the United Arab Emirates recently, where they held significant contacts.

 

The MoU with NPCI International

Meanwhile, Karavias recently accompanied Greek PM Kyriakos Mitsotakis on a recent visit to India, during which important agreements were signed and new opportunities were identified to further enrich the two countries’ bilateral ties.

Regarding Eurobank specifically, an MoU was signed with NPCI International aimed at creating a strategic alliance in the field of international incoming remittances

According to Karavias, the cooperation with NPCI International is fully aligned with Eurobank’s commitment to become the bank of choice for Indian businesses seeking to establish offices in Greece or Cyprus, and launch operations in Europe.

As he said, it is extremely important that the effort is being backed by the Greek and Cypriot governments, while Brexit has also helped as Indian and Middle Eastern companies are now seeking out other locations for their headquarters so as to continue their European operations.

“We have the advantage that our main shareholder, Prem Watsa, who is the founder and CEO of Fairfax Financial Holdings, is Indian,” Karavias pointed out. “Fairfax has created a subsidiary, Fairfax India, with many billions in investments in India. Hence, this gives us the ability to have a certain access through our main shareholder.”

He added, “This is not an easy effort, but importantly, what’s pushing us to proceed is that there is a will on the level of governments to develop this cooperation. Therefore, it is something that we will invest in in the coming years and we are very optimistic about the outcome”.

 

Cyprus’ role and its advantages

Referring to Cyprus’ advantages in terms of attracting businesses from India and the Middle East, Karavias highlighted the island’s geographical proximity to them. Also, he said, Indian and Middle Eastern businesses use the English business language. Another factor is that India and Cyprus are both Commonwealth Countries.

He emphasised the fact that Cyprus’ corporate law is essentially the same as that of India, which he said was a very important advantage, while there is also a double taxation avoidance agreement in place.

“Cyprus has very significant infrastructure of professional services, it has the expertise on how to host foreign businesses, while the country now has a strong banking system that is supervised directly by the European Central Bank – which is very important in the eyes of foreigners – that can meet and serve the needs of foreign companies,” said Karavias. “Even if we manage to bring a small percentage of these companies to Cyprus, it will be hugely beneficial for the country’s economy.”

 

Edited March 14 by Hoodlum

[nwoodman]

2 hours ago, Hoodlum said:

Some interesting comments from Eurobank on how they plan to use Hellenic Bank for India and Middle East business, once they acquire the Majority stake.

 

https://www.cbn.com.cy/article/2024/3/14/764158/eurobank-plans-to-make-cyprus-an-eu-gateway-for-india-and-the-middle-east/

 

 

Fascinating.  They have alluded to this previously but this is much more granular and removes any doubt as to who the facilitator is.  It’s certainly not without its challenges but done well the upside is significant.
 

Fairfax the Facilitator…kind of has that ring to it like “Maximus the Merciful”.

[petec]

I was also interested to note in the letter that Recipe has started its expansion into India. The FFH spider's web is growing!

[gfp]

Not sure where to post this, either here or in the old Atlas thread but here is the year end 20-F from Atlas / Poseidon, which still reports to the SEC for the Fairfax shareholders who are interested:

 

https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/1794846/000162828024011260/atco-20231231.htm

[MMM20]

It would be cool if a Canadian insurance company still trading at mid-high single digits P/E ends up being the best way to invest in the Indian growth story over the next decade (ironically maybe even better than Fairfax India)

 

Edited March 15 by MMM20

[dartmonkey]

58 minutes ago, MMM20 said:

It would be cool if a Canadian insurance company still trading at mid-high single digits P/E ends up being the best way to invest in the Indian growth story over the next decade (ironically maybe even better than Fairfax India)

 

Because of Digit?

 

By my count, US$26.2 market cap Fairfax owns the following, in India (see p.18 of the annual letter):

 

Fairfax India: $841m (57.6m shares)

T. Cook India: $540m (300.3m shares)

Quess: $309m (34.5% of the company)

Other: $295m (Dec 31st 2023 fair value)

Digit: $2265m (ditto)

Total: $4173m (my calculation; annual letter says $4247 for Dec 31st)

 

Fairfax has a market cap of $26b, so these Indian holdings represent about 16% of the company, assuming the same degree of undervaluation from book value for Digit that applies to other Fairfax holdings.

 

So to prefer FFH over FIH, to get a stake in India, one would have to really love Digit, Thomas Cook and Quess as investments, as opposed to the Bangalore airport (44% of FIH's fair value holdings as of Dec 31st) and the other medium sized FIH holdings (primarily IIFL Finance, CSBBank and Sanmar Chemicals, which account for another 31%.)

 

And even so, Fairfax Financial only gets you about a 16% exposure to these.

 

I would gladly reduce my somewhat oversized Fairfax India exposure and buy more Fairfax Financial shares (or reestablish my Berkshire position), but for the moment, I think Fairfax India is even more undervalued than Fairfax Financial and gives me a lot more exposure to India's exciting potential.

 

Of course with FIH you get a not insignificant slippage, 1.5% plus 20% of the annual book value growth above 5%. But unless that is a deal breaker, if you really want India, I think FIH fits the bill better. 

 

 

[nwoodman]

12 hours ago, gfp said:

Not sure where to post this, either here or in the old Atlas thread but here is the year end 20-F from Atlas / Poseidon, which still reports to the SEC for the Fairfax shareholders who are interested:

 

https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/1794846/000162828024011260/atco-20231231.htm

Thanks for this.  Running the numbers through the machine offers the following progressions:

 

Debt-to-Equity Ratio:

2023: 1.82   (Total Borrowings $8,046.7m / Equity $4,415.9m)

2022: 1.47   (Total Borrowings $6,078.6m / Equity $4,128.9m)

2021: 1.41   (Total Borrowings $4,971.1m / Equity $3,517.6m)

 

Interest Coverage Ratio:

2023: 2.08  (OP $782.3m / IE $375.6m)

2022: 3.19   (OP $751.4m / IE $235.4m)

2021: 3.87  (OP $762.2m / IE $197.1m)

 

Return on Assets (ROA):

2023: 2.94%  (NP$403.0m / TA$13,713.0m)

2022: 5.51%   (NP $622.3m / TA $11,302.4m)

2021: 3.79%   (NP $400.5m / TA $10,569.6m)

 

Operating Margin:

2023: 43.0%  (OP$782.3m / Revenue $1,820.7m)

2022: 44.3%  (OP $751.4m / Revenue $1,697.4m)

2021: 46.3%  (OP $762.2m / Revenue $1,646.6m)

 

Net Profit Margin:

2023: 22.1%  (NP $403.0m / Revenue $1,820.7m)

2022: 36.7%  (NP$622.3m / Revenue $1,697.4m)

2021: 24.3%  (NP$400.5m / Revenue $1,646.6m)

 

If interest rates were to decline then this looks to be a counterbalance to the interest income from the bond portfolio. As long as it can remain a profitable single digit grower while they consolidate the industry then that will be a good outcome.  Happy to have this grind away and become “surprisingly” accretive later this decade.

 

Edit: other key numbers where the trend is not really your friend, but there may be some timing issues associated with the fleet build out. Ultimately Prem is forecasting 400+m this year and 500m next year, seems plausible.

 

Return on Equity (ROE):2023: 9.43%, 2022: 16.28%, 2021: 11.21%

Return on Capital Employed (ROCE): 2023: 6.19%, 2022: 7.32%, 2021: 8.11%

Return on Invested Capital (ROIC): 2023: 6.35%, 2022: 7.54%, 2021: 8.59%

 

From the letter:

"Upon completion of Poseidon's containership newbuild program, Poseidon is expected to deliver more than $2.5 billion of revenue and $1.9 billion of adjusted EBITDA.“

"Poseidon is expected to make net earnings in excess of $400 million in 2024 and $500 million in 2025. We carry our 43% ownership in Poseidon at $1.7 billion – 10x 2024 expected earnings or 8x 2025 expected earnings."

 

 

 

 

Edited March 16 by nwoodman

[Dinar]

Fairfax India is not really investable for US citizens.  The tax and filing requirements are insane as far as I understand.

[Luca]

1 hour ago, Dinar said:

Fairfax India is not really investable for US citizens.  The tax and filing requirements are insane as far as I understand.

Seriously? Why is that? 0 Problems buying this for me as a german. Just executing the order on IB easy. 

[gfp]

11 minutes ago, Luca said:

Seriously? Why is that? 0 Problems buying this for me as a german. Just executing the order on IB easy. 

 

Dinar is probably talking about Fairfax India being classified as a PFIC for US-based investors.  I'm not sure it still is, but Americans can hold it inside an IRA type account and avoid the hassles.

[Dinar]

3 minutes ago, gfp said:

 

Dinar is probably talking about Fairfax India being classified as a PFIC for US-based investors.  I'm not sure it still is, but Americans can hold it inside an IRA type account and avoid the hassles.

That is correct.  In terms of IRA, yes, but with a caveat if you put in more than USD 100K, there may be a filing requirement.  I am having my accountant check on it.  

[Xerxes]

For Canadian, if foreign holdings (aside U.S.) reaches a watermark threshold of $100,000, additional disclosure is required by Revenue Canada. Even if there are no realized gain or losses. And even if it passes $100,000 and dips back below. 

[valueventures]

4 hours ago, gfp said:

 

Dinar is probably talking about Fairfax India being classified as a PFIC for US-based investors.  I'm not sure it still is, but Americans can hold it inside an IRA type account and avoid the hassles.

Is Fairfax (FFH) classified as a PFIC for US-based investors? My current understanding is that just Fairfax India is. Thanks! 

[Dinar]

3 minutes ago, valueventures said:

Is Fairfax (FFH) classified as a PFIC for US-based investors? My current understanding is that just Fairfax India is. Thanks! 

WIth the caveat that I am neither a tax attorney nor a tax accountant, my understanding that it is only Fairfax India that is a PFIC.

[valueventures]

1 minute ago, Dinar said:

WIth the caveat that I am neither a tax attorney nor a tax accountant, my understanding that it is only Fairfax India that is a PFIC.

Thanks. I believe the only negative to holding FFH in a taxable account as a US-based investor is that 15% of dividends are withheld, whereas you get the full dividend in a tax-exempt account. 

[value_hunter]

12 hours ago, Xerxes said:

For Canadian, if foreign holdings (aside U.S.) reaches a watermark threshold of $100,000, additional disclosure is required by Revenue Canada. Even if there are no realized gain or losses. And even if it passes $100,000 and dips back below. 

Actually it's cost based not fair value based. Also Canadian companies like FFH, issue foreign currency share are not treated as foreign property.

https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/questions-answers-about-form-t1135.html#SFPCanadianReporting

[Viking]

As per @glider3834's suggestion I want to add Sporting Life to my spreadsheet that tracks Fairfax's large equity holdings. It is a consolidated holding and it has a carrying value of $82 million. However, the carrying value for the 'other' bucket for 'Consolidated Stocks - Consolidated' holdings in the summary below has a value of zero.

 

This suggests to me that the values for Sporting Life is not included in the summary below provided in Prem's letter in Fairfax's annual report?

 

Is this also the case with AGT Food Ingredients? 

 

[ValueMaven]

Kennedy Wilson's stock has been in freefall recently ...