Fairfax stock positions

[petec]

https://www.thomascook.in/press-release/statement-from-mr.-madhavan-menon-chairman-managing-director-of-thomas-cook-india-ltd./109

This may be a reason. Thomas cook plc going into bankruptcy.

 

Shouldn't be. The two are unrelated apart from the use of the name. In fact the original TC going bankrupt might give TCIL the chance to buy the rights to use the name in India in perppetuity, which would be good.

 

 

[wisdom]

https://www.business-standard.com/article/companies/fairfax-financial-holdings-sells-5-in-icici-lombard-for-rs-2-562-crore-119092700048_1.html

 

$500 mil

[JEast]

Sold the last remaining 4.91% stake of ICICI Lombard for a slightly better price than the previous block.

 

https://www.business-standard.com/article/companies/fairfax-offloads-4-9-stake-in-icici-lombard-for-rs-2-627-crore-119101700048_1.html

 

[bearprowler6]

Sold the last remaining 4.91% stake of ICICI Lombard for a slightly better price than the previous block.

 

https://www.business-standard.com/article/companies/fairfax-offloads-4-9-stake-in-icici-lombard-for-rs-2-627-crore-119101700048_1.html

 

JEast---any chance the team at Fairfax uses this to buy back their stock at its current levels? It would seem that a lasting benefit to all long suffering shareholders could be attained if the funds from the sale are used in this way?

[JEast]

Based on the recent short form notice, they have bought 65k since June 30.  Not anything like that have indicated that they would buy though, but with the caveat being that they needed the capital to buy more Brit/Allied.

[valueinvesting101]

As per Fairfax India or Fairfax Financial annual report, Prem had indicated IIFL pre-demerger were trading at attractive valuation and now de-merged companies are even cheaper.  CSB Bank has also indicated that it is filing for IPO next month and some of the existing investors are also selling their holding in CSB.

[investmd]

By my maths the top 4 positions are now:

 

$1bn Eurobank/Grivalia, which could have a long way yet to run.

$930m Blackberry (including the convertible at par) which seems to be gaining operating momentum.

$820m Seaspan (not including $500m of debt, but including the profit on the exercise of the third tranche of options, which are in the money).

$700m ICICI Lombard which has had a terrific run and which I suspect they might sell.

 

Following up on results 6 months after this post on top 4 FFH positions:

Eurobank - UP 17%

Blackberry - DOWN 44%

Seaspan - UP 10%

ICICI Lombard - UP 16% (& recent FFH exit)

 

FFH share price over last 6 months - DOWN 11%

 

All of us are likely keen to see result of if/how FFH uses large cash position from recent ICICI Lombard sale to drive value for FFH.

[Sombunall]

Thanks for the summary. And yes, definitely keen to see what they'll do with the proceeds... I think anything less than more buybacks at this price would be a disappointment for most. We will see!

[Viking]

Thanks for the summary. And yes, definitely keen to see what they'll do with the proceeds... I think anything less than more buybacks at this price would be a disappointment for most. We will see!

 

I just listened to the WR Berkley Q2 call and Rob Berkely stated they feel pricing is firming. Fairfax said on the Q2 call that growing the business at their operations is a priority (to take advantage of the hard market that is developing) and you can see this in the growth they are posting. Fairfax also mentioned they are required to take out minority stakes in Brit and Eurolife in 2019. They also need to take out OMERS and their minority stake at Allied World at some point and this will be a big use of cash. So i am not expecting aggressive share repurchases until we get more clarity on how much new business they can write in the hard market and timing and cost on the minority buyouts.

 

They also appear focussed on harvesting some gains (ICICI Lombard) and also exiting some positions (Reitmans). If they do more of this then perhaps they will get more aggressive with share buybacks.

[petec]

Thanks for the summary. And yes, definitely keen to see what they'll do with the proceeds... I think anything less than more buybacks at this price would be a disappointment for most. We will see!

 

I just listened to the WR Berkley Q2 call and Rob Berkely stated they feel pricing is firming. Fairfax said on the Q2 call that growing the business at their operations is a priority (to take advantage of the hard market that is developing) and you can see this in the growth they are posting. Fairfax also mentioned they are required to take out minority stakes in Brit and Eurolife in 2019. They also need to take out OMERS and their minority stake at Allied World at some point and this will be a big use of cash. So i am not expecting aggressive share repurchases until we get more clarity on how much new business they can write in the hard market and timing and cost on the minority buyouts.

 

 

Exactly right, in my view. Pity.

[Viking]

Does anyone have an opinion of what positions Fairfax is looking to monetize next (stock holdings, affiliates etc)? This has the potential to be a nice short term catalyst for the shares. Here is what the company had to say on the Q3 conference call.

 

Paul Holden (CIBC): "...you referred to monetizations and process. I was wondering if we can kind of get a status update on that monetization and process and just a characterization of how far you think you're along in that process. Is there still a lot to potentially do there?"

 

Paul Rivett (Fairfax): "...So we're quite far along in the process. There -- we've got the whole Hamblin Watsa team from Prem right through working with us. A number of these things are close to fruition. A few that are more at the earlier stages. But as you can imagine, we can't give you specifics on it, but we're very happy that we're close to being able to get a few things across the line in the fourth quarter. ICICI Lombard was part of that. So you saw that we can act fairly quickly. But also, it's a -- we want to get best price and best execution, right? So we're working to -- we're getting -- we're working to do that for our shareholders."

[petec]

Does anyone have an opinion of what positions Fairfax is looking to monetize next (stock holdings, affiliates etc)? This has the potential to be a nice short term catalyst for the shares. Here is what the company had to say on the Q3 conference call.

 

Paul Holden (CIBC): "...you referred to monetizations and process. I was wondering if we can kind of get a status update on that monetization and process and just a characterization of how far you think you're along in that process. Is there still a lot to potentially do there?"

 

Paul Rivett (Fairfax): "...So we're quite far along in the process. There -- we've got the whole Hamblin Watsa team from Prem right through working with us. A number of these things are close to fruition. A few that are more at the earlier stages. But as you can imagine, we can't give you specifics on it, but we're very happy that we're close to being able to get a few things across the line in the fourth quarter. ICICI Lombard was part of that. So you saw that we can act fairly quickly. But also, it's a -- we want to get best price and best execution, right? So we're working to -- we're getting -- we're working to do that for our shareholders."

 

What I thought was even more interesting was the commentary later on about wanting a more diverse, more liquid portfolio, albeit still with a value/opportunistic bent. They were also quite explicit about not wanting positions over $1bn (although that would mean reducing Eurobank which I think is unlikely and a mistake at this point).

 

Short answer to your question is I have no idea what they will sell but the changes might go some way towards addressing a lot of the concerns raised here over the years.

[bearprowler6]

Does anyone have an opinion of what positions Fairfax is looking to monetize next (stock holdings, affiliates etc)? This has the potential to be a nice short term catalyst for the shares. Here is what the company had to say on the Q3 conference call.
 
Paul Holden (CIBC): "...you referred to monetizations and process. I was wondering if we can kind of get a status update on that monetization and process and just a characterization of how far you think you're along in that process. Is there still a lot to potentially do there?"
 
Paul Rivett (Fairfax): "...So we're quite far along in the process. There -- we've got the whole Hamblin Watsa team from Prem right through working with us. A number of these things are close to fruition. A few that are more at the earlier stages. But as you can imagine, we can't give you specifics on it, but we're very happy that we're close to being able to get a few things across the line in the fourth quarter. ICICI Lombard was part of that. So you saw that we can act fairly quickly. But also, it's a -- we want to get best price and best execution, right? So we're working to -- we're getting -- we're working to do that for our shareholders."

 
What I thought was even more interesting was the commentary later on about wanting a more diverse, more liquid portfolio, albeit still with a value/opportunistic bent. They were also quite explicit about not wanting positions over $1bn (although that would mean reducing Eurobank which I think is unlikely and a mistake at this point).
 
Short answer to your question is I have no idea what they will sell but the changes might go some way towards addressing a lot of the concerns raised here over the years.

 
Given the comments made on the call related to a more liquid portfolio it would seem a number of existing private investments would be the initial candidates for monitization. The would also be consistent with the comment mae by Prem in his march/2019 letter to shareholders:
 
"We expect to monetize some of our remaining investments in private companies with similar results!"
 
Therefore the likely candidates would inlcude the following:
 
- APR Energy
-Davos
-Peak Performance (formerly Performance Sports)
-Farmers Edge
-Toys R US (land value which they continually say is the value of the investment made)
-Boat Rocker
-Sporting Life/Golf Town
 
Monitization could take several forms including IPOs and/or sale of a part  or whole of these investments to a private equity buyer.
 
The following from their public holdings are also possibilities:
 
-CIB (Egypt)
-Sterling Resorts (held through Thomas Cook)
-Thomas Cook itself
-Resolute Forest (take the hit and move on)
 
 

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[petec]

Does anyone have an opinion of what positions Fairfax is looking to monetize next (stock holdings, affiliates etc)? This has the potential to be a nice short term catalyst for the shares. Here is what the company had to say on the Q3 conference call.
 
Paul Holden (CIBC): "...you referred to monetizations and process. I was wondering if we can kind of get a status update on that monetization and process and just a characterization of how far you think you're along in that process. Is there still a lot to potentially do there?"
 
Paul Rivett (Fairfax): "...So we're quite far along in the process. There -- we've got the whole Hamblin Watsa team from Prem right through working with us. A number of these things are close to fruition. A few that are more at the earlier stages. But as you can imagine, we can't give you specifics on it, but we're very happy that we're close to being able to get a few things across the line in the fourth quarter. ICICI Lombard was part of that. So you saw that we can act fairly quickly. But also, it's a -- we want to get best price and best execution, right? So we're working to -- we're getting -- we're working to do that for our shareholders."

 
What I thought was even more interesting was the commentary later on about wanting a more diverse, more liquid portfolio, albeit still with a value/opportunistic bent. They were also quite explicit about not wanting positions over $1bn (although that would mean reducing Eurobank which I think is unlikely and a mistake at this point).
 
Short answer to your question is I have no idea what they will sell but the changes might go some way towards addressing a lot of the concerns raised here over the years.

 
Given the comments made on the call related to a more liquid portfolio it would seem a number of existing private investments would be the initial candidates for monitization. The would also be consistent with the comment mae by Prem in his march/2019 letter to shareholders:
 
"We expect to monetize some of our remaining investments in private companies with similar results!"
 
Therefore the likely candidates would inlcude the following:
 
- APR Energy
-Davos
-Peak Performance (formerly Performance Sports)
-Farmers Edge
-Toys R US (land value which they continually say is the value of the investment made)
-Boat Rocker
-Sporting Life/Golf Town
 
Monitization could take several forms including IPOs and/or sale of a part  or whole of these investments to a private equity buyer.
 
The following from their public holdings are also possibilities:
 
-CIB (Egypt)
-Sterling Resorts (held through Thomas Cook)
-Thomas Cook itself
-Resolute Forest (take the hit and move on)
 
 

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• 
  

 

I believe they were considering Quess a while ago but I can't believe they would sell it at this price.

 

I think CIB may be a very long term position given how profitable it is and how underbanked Egypt is. Maybe they'll merge it with ATMA one day ;)

[Viking]

Petec, thanks again for getting this thread started and posting your summary :-) I have spend a couple of days of my life trying to figure out what the actual size of each of the various positions are (in $US). So I can understand magnitude and compare positions. I also want to be able to track them to understand how they will impact FFH results at quarter end. I have tried to determine the actual amount of shares Fairfax currently holds, what the share price is (local currency), total value of holding, currency conversion to $US etc. For those who like detail look at the attached Excel spreadsheet; hopefully it is not too confusing :-) Please let me know if you see and errors; for starters I am not sure if I have calculated Fairfax India and Africa correctly given what is reported on the Balance Sheet. And feel free to copy and use the spreadsheet to fit your needs. My plan is to try and get position sizes for as many holdings as possible, including private holdings (Toys 'R Us etc) so stay tuned. 

 

Value (in millions) of Stock Holdings as of Nov 6 (all in $US). Percent = share of listed 15 holdings.

1.) Eurobank =        $1,156  = 22% (C = common stock on balance sheet)

2.) Seaspan =            $873  = 17% (A) (not including 25 million $8.06 warrants)

3.) Blackberry =          $259  =  5% © (not including convert; it would be top 3 if included)

4.) Recipe =                $467  =  9% (A = investment in associates)

5.) Fairfax India =        $451  =  9% (A)

6.) Thomas Cook India = $441 = 9% (A)

7.) CIBank - Egypt =  $402  =    8%©

8.) Quess =                $346  =    7% (A)

9.) Kennedy Wilson =  $308  =    6% ©

10.) Fairfax Africa =    $155  =  3% (A)

11.) Resolute =          $123  =    2% (A)

12.) Stelco =                $99  =    2% ©

13.) IIFL Wealth =        $80  =    1% (A)

14.) IIFL Finance =        $50  =    1% (A)

15.) IIFL Securities =    $11  =    0% (A)           

 

Total 15 positions =    $5,504 =  100%

 

Some takeaways:

- the big 3: Eurobank, Seaspan and Blackberry. All 3 have interesting stories with significant upside potential.

- the India positions have been crushed over the past year (TCI, Quess, IIFL, FIH). If they are half as undervalued as FFH thinks there is big upside potential.

- given its very small size we can put a pitchfork in Resolute = 2.4%. Bad purchase (happens). Time to move on

- surprised with size of CIB; looks to be very well run. Chug chug holding (solid grower).

- KW: another chug, chug holding (solid grower)

Fairfax_Equity_Holdings.xlsx

[petec]

Thanks, Viking. This tallies with my version and you caught some CIB shares I had missed.

 

Couple of thoughts:

1) You're double counting Quess - it hasn't spun off from TCIL yet.

2) I think you ought to subtract the cost of exercising the SSW warrants ($8.05 per share). So the value of the warrants is 25*(11.32-8.05).

 

I see Exco has relisted. The stake is worth $10m. Another epic win :(

[petec]

Incidentally I see that Recipe recently bought a decent chunk of its shares from FFH, who slightly more bought from the family; the net result is FFH owns slightly more shares and has an additional 4% of the equity, getting them to 48%. Recipe has also been adding to its stake in The Keg Income Fund and now have 29%.

[petec]

Good set of results from SSW overnight. Accounting earnings were below expectations but operating results were superb (highest ever utilisation, costs down etc.) and cash flows continue to track towards $500m FCF to common excluding the big one off in q2. That puts the stock on a free cash flow yield of over 20%. Cash flows are growing as they pay down high cost debt/prefs and the company is highly liquid given the new debt facility they announced in q2, so expect them to ramp up acquisitions as they find targets that meet their requirements. Market remains tight and shipping rate commentary is positive.

[thrifty]

Pete this thread is so useful. Thank you so much.

 

Do you have more comments in SSW? What's their NAV for example in your calculation and what's your reason(s) to make it your biggest holding? How does it compare to cheaper names such as GSL in your opinion?

 

Thanks again.

[petec]

Pete this thread is so useful. Thank you so much.

 

Pleasure, and glad you find it helpful.

 

Do you have more comments in SSW? What's their NAV for example in your calculation and what's your reason(s) to make it your biggest holding? How does it compare to cheaper names such as GSL in your opinion?

 

SSW isn't my biggest position and never had been, but it's a decent size. I've discussed it in some detail on the SSW thread but in short, what interests me is that I can buy 20c of free cash flow for every $1 I spend on the shares, and that FCF sits in the hands of an outstanding capital allocator. Clearly in an operationally and financially levered business, cash flows can be volatile. Two things give me some confidence here: the industry's record-low order book, and SSW's contracts, although I expect these to shorten over time. I don't look so much at NAV for various reasons and I haven't compared SSW to peers because I regard the management element as central to the thesis.

 

I did lighten up the position at about $11.50, and would add to it if it fell sharply on e.g. macro concerns. They are running the business beautifully (safety rates, occupancy, innovative financing and contract structures - all matter because the customer base has consolidated and they want high quality providers). I think they have a great opportunity to consolidate their industry accretively and branch out into related industries. As a result the capacity to compound value per share at an attractive rate is immense, but the share price won't be a smooth ride and I hope to add rather than detract value by flexing the position size over time.

 

 

 

[petec]

Fairfax appears to be reducing Eurobank. Bloomberg says that in an emailed statement the bank announced Fairfax’s voting rights had fallen below one third, to 1.160m. I assume that means they’re selling shares.

[TwoCitiesCapital]

Fairfax appears to be reducing Eurobank. Bloomberg says that in an emailed statement the bank announced Fairfax’s voting rights had fallen below one third, to 1.160m. I assume that means they’re selling shares.

 

Held for years. Diluted to Oblivion. Re-upped their capital commitment. Held for more years. And then they reduce right before the real money seems it's going to be made?

 

Seems odd.

[petec]

Fairfax appears to be reducing Eurobank. Bloomberg says that in an emailed statement the bank announced Fairfax’s voting rights had fallen below one third, to 1.160m. I assume that means they’re selling shares.

 

Held for years. Diluted to Oblivion. Re-upped their capital commitment. Held for more years. And then they reduce right before the real money seems it's going to be made?

 

Seems odd.

 

It does. In reality it’s a tiny reduction but I agree it feels like they’re leaving a lot on the table.

[petec]

For those not watching the Seaspan thread, Fairfax have sold their private holding APR to Seaspan. APR owns and leases rapid-deployment power generation units so this gives Seaspan an entirely new vertical. It also increases Fairfax's position in Seaspan still further. The deal appears to be done at Fairfax's current carrying value for APR (67.9% stake * $425m equity value = $298m APR valuation at YE18) so no gain for Fairfax, but it does boost dividend income (I don't think APR paid a divi as it needed all its cash flows to reduce debt; Seaspan shares do pay a dividend). I have not yet listened to the Seaspan investor day which was held on Friday but I believe they said they bought APR for less than 5x ebitda and gave reasons for why it would do better under Seaspan than Fairfax.

 

Seaspan will convert to a holding company (Atlas) and aims to continue diversifying in hard asset asset management under Sokol. I think Seaspan, Recipe, FIH, and FIH can all be viewed as long term Fairfax partnerships in their respective niches.

[petec]

I had a feeling this might happen: with Thomas Cook in bankruptcy, Thomas Cook India has bought the rights to the brand for about $2m. Previously their right to use the brand was set to expire in a few years.

 

EDIT: Actually I think they only bought it in certain countries. They didn't buy it in India - someone else paid $13m, which suggests TCIL don't think the brand is very valuable.