Fairfax stock positions

[petec]

Definitely KW, and maybe Altius even. 

[Viking]

Attached below is my Excel file estimating how Fairfax's equity holdings have performed in Q2. Another very good quarter with equity investments in aggregate up about US $600 million (this includes Farmers Edge and Boat Rocker which were down about $180 million in total). The big gainers were BB +$355 million and Eurobank $150 million. Mark to market holdings are up about $475 million = $18/share pre tax. So my guess is Fairfax could report earnings in the $20/share range which would bring June 30 BV to about US$520. Fairfax shares are trading today at about $440/share = 0.85 x BV. Cheap  RBC is currently estimating Fairfax will earn $10.41 so after Fairfax reports results the end of July we should see some nice upward revisions to EPS from the analysts. 

 

I used the 2020 AR as my starting point. So I DO NOT capture the $1.3 billion in equity holdings in Riverstone. So my estimate above is likely understated. 13F numbers have been updated on the smaller positions. Q1 report was used to update the FFH total return swap quantity and ownership interest in Farmers Edge and Boat Rocker. Does anyone know which bucket Farmers Edge and Boat Rocker fall? Is it 'Associates-Equity Accounted' or 'Consolidated Equities' or something else? I will move them into the correct bucket once I know.

 

This makes 3 quarters in a row where Fairfax will beat earnings estimates by a significant margin. Despite the big increase in share price the last 9 months the shares are still cheap - they are trading below where they were trading in January 2020. The company looks well positioned as economic activity starts/continues to improve in 2H 2021 and the insurance hard market is expected to continue into 2022 (although it looks like it is slowing).

 

PS: the file is used primarily to capture the direction and magnitude of changes in Fairfax's equity holdings and not meant to be too precise... there is too much going on and much that is not disclosed in the quarterly reports. 

Fairfax Equity Holdings June 30 2021.xlsx

[glider3834]

1 hour ago, Viking said:

Attached below is my Excel file estimating how Fairfax's equity holdings have performed in Q2. Another very good quarter with equity investments in aggregate up about US $600 million (this includes Farmers Edge and Boat Rocker which were down about $180 million in total). The big gainers were BB +$355 million and Eurobank $150 million. Mark to market holdings are up about $475 million = $18/share pre tax. So my guess is Fairfax could report earnings in the $20/share range which would bring June 30 BV to about US$520. Fairfax shares are trading today at about $440/share = 0.85 x BV. Cheap  RBC is currently estimating Fairfax will earn $10.41 so after Fairfax reports results the end of July we should see some nice upward revisions to EPS from the analysts. 

 

I used the 2020 AR as my starting point. So I DO NOT capture the $1.3 billion in equity holdings in Riverstone. So my estimate above is likely understated. 13F numbers have been updated on the smaller positions. Q1 report was used to update the FFH total return swap quantity and ownership interest in Farmers Edge and Boat Rocker. Does anyone know which bucket Farmers Edge and Boat Rocker fall? Is it 'Associates-Equity Accounted' or 'Consolidated Equities' or something else? I will move them into the correct bucket once I know.

 

This makes 3 quarters in a row where Fairfax will beat earnings estimates by a significant margin. Despite the big increase in share price the last 9 months the shares are still cheap - they are trading below where they were trading in January 2020. The company looks well positioned as economic activity starts/continues to improve in 2H 2021 and the insurance hard market is expected to continue into 2022 (although it looks like it is slowing).

 

PS: the file is used primarily to capture the direction and magnitude of changes in Fairfax's equity holdings and not meant to be too precise... there is too much going on and much that is not disclosed in the quarterly reports. 

Fairfax Equity Holdings June 30 2021.xlsx 121.84 kB · 4 downloads

thanks Viking!

I am interested to also see how the rest of their non-FFH related long equity TRS position goes as well.

 

If we assume approx P/BV of 0.85 , then Fairfax is sitting at a decent discount avg P/BV ratio of 1.09 for Fairfax over the last 5 years as reported by morningstar

https://www.morningstar.ca/ca/report/stocks/valuation.aspx?t=0P00006821&lang=en-CA

 

and below the median Price/Book value deal multiple of 1.19x for M&A transactions for P&C insurers in 2020 

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/2021-insurance-ma-outlook.pdf

 

Using FFH 2020 AR extract (see below), I crunched some numbers on Fairfax's sale of 14% interest in Brit to OMERS for USD 375 mil - works out to be at a multiple of approx 1.5 x NWP and 1.68 x BV - obviously that is just one sub & not necessarily reflective of the rest of the Fairfax insurance business but still interesting

 

Brit, based in London, England, is a market-leading global Lloyd’s of London specialty insurer and reinsurer. In 2020, Brit’s net premiums written were US$1,775.6 million. At year-end, the company had shareholders’ equity of US$1,592.6 million and there were 748 employees.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Viking]

Glider, yes, Fairfax has a lot of equity exposure that i do not capture in my spreadsheet so i would expect their reported results to be better. 
 

Thanks for posting the historical price to BV measures. Buyers at todays share price are getting two things:

1.) stock trading at low band of historic P/BV trading range (cheap)

2.) company very well positioned to benefit from current trends:

- hard market for insurance pricing that is at stage where higher priced written premiums will transition to earned premiums which should result in improving combined ratio and better profitability.

- investment portfolio is leveraged to cyclicals which will benefit disproportionately from higher economic growth in 2021 and 2022.

 

And despite the crazy run up the past 8 months lots of the equity holdings have solid upside should the economy grow as expected the next 12-24 months:

1.) Atlas: actually looks undervalued and perhaps significantly at current prices. As they take delivery of new builds later in 2021 and investors better understand revenue and earnings trajectories shares should increase nicely. This is Fairfax’s largest single holding. 
2.) Eurobank: was up significantly in Q2. The economy in Greece is slowly improving, the government is pushing through much needed market reforms and the bank continues to aggressively decrease non-performing loans. Chug, chug, chug

3.) Blackberry: was up significantly in Q2. Thank you wallstreetbets subreddit. I continue to think there is a solid chance Fairfax will be able to unload this puppy at some point in 2021. While we wait perhaps we get good news on the patent sale...

4.) India investments (Quess, IIFL triplets, Thomas Cook): companies have performed very well, especially given the Covid situation in India.
5.) Fairfax India: crazy cheap compared to the value of the individual companies it holds. Two IPO’s planned which could add further value for shareholders. Not surprising Fairfax India is buying back a chunk of stock.
6.) Resource plays - Resolute and Stelco - could see significant upside should lumber and steel prices remain higher than currently expected / reflected in share prices.

7.) Recipe and Dexterra: Recipe is ideally positioned as a reopening play as dining out should spike in Canada over the next year. Dexterra will also benefit big time as its camp / airport business ramp back up; it also has a growing modular housing platform that is poised to benefit from the push from big cities for affordable housing solutions for homeless (should be some nice contract wins in 2H 2021). 
8.) Fairfax total return swaps (1.9 million shares): this is a significant holding. Fairfax is sending a strong message they feel their shares are undervalued. And they will benefit big time should they go up in value (interests are aligned with shareholders :-).

 

And what about their insurance businesses? Lots of great things going on here. I am interested to get an update on how Digit (India) is doing; this is shaping up to be a very big winner for Fairfax in the coming years. 
 

Should its share price continue to trade sideways I do expect Fairfax to do something creative to be able to buy back a chunk of shares. If we see solid economic growth in 2H and further increases in the equity holdings perhaps we will see some monetizations with some of the proceeds used to take out FFH shares. We will see  

Edited July 1, 2021 by Viking

[glider3834]

1 hour ago, Viking said:

Glider, yes, Fairfax has a lot of equity exposure that i do not capture in my spreadsheet so i would expect their reported results to be better. 
 

Thanks for posting the historical price to BV measures. Buyers at todays share price are getting two things:

1.) stock trading at low band of historic P/BV trading range (cheap)

2.) company very well positioned to benefit from current trends:

- hard market for insurance pricing that is at stage where higher priced written premiums will transition to earned premiums which should result in improving combined ratio and better profitability.

- investment portfolio is leveraged to cyclicals which will benefit disproportionately from higher economic growth in 2021 and 2022.

 

And despite the crazy run up the past 8 months lots of the equity holdings have significant upside should the economy grow as expected the next 12-24 months:

1.) Atlas: actually looks undervalued and perhaps significantly at current prices. As they take delivery of new builds later in 2021 and investors better understand revenue and earnings trajectories shares should increase nicely. This is Fairfax’s largest single holding. 
2.) Eurobank: was up significantly in Q2. The economy in Greece is slowly improving, the government is pushing through much needed market reforms and the bank continues to aggressively decrease non-performing loans. Chug, chug, chug

3.) Blackberry: was up significantly in Q2. Thank you wallstreetbets subreddit. I continue to think there is a solid chance Fairfax will be able to unload this puppy at some point in time. While we wait perhaps we get good news on the patent sale...

4.) India investments (Quess, IIFL triplets, Thomas Cook): companies have performed very well, especially given the Covid situation in India.
5.) Fairfax India: crazy cheap compared to the value of the individual companies it holds. Two IPO’s planned which could add further value for shareholders. Not surprising Fairfax India is buying back a chunk of stock.
6.) Resource plays - Resolute and Stelco - could see significant upside should lumber and steel prices remain higher than currently expected / reflected in share prices.

7.) Recipe and Dexterra: Recipe is ideally positioned as a reopening play as dining out should explode in Canada over the next year. Dexterra will also benefit big time as its camp / airport business ramp back up; it also has a growing modular housing platform that is poised to benefit from the push from big cities for affordable housing solutions for homeless (should be some nice contract wins in 2H 2021). 
8.) Fairfax total return swaps (1.9 million shares): this is a significant holding. Fairfax is sending a strong message they feel their shares are undervalued. And they will benefit big time should they go up in value (interests are aligned with shareholders :-).

 

And what about their insurance businesses? Lots of great things going on here. I am especially interested to get an update on how Digit (India) is doing; this is shaping up to be a very big winner for Fairfax in the coming years. 
 

Should its share price continue to trade sideways I do expect Fairfax to do something creative to be able to buy back a chunk of shares. If we see solid economic growth in 2H and further increases in the equity holdings perhaps we will see some monetizations with some of the proceeds used to take out FFH shares. We will see  

for Digit I have been checking the IRDAI monthly non-life GWP numbers but note that these flash numbers are provisional & unaudited (so not final numbers for Digit) & for 2021-22 YTD which is for just two months as year runs from 1st Apr (so for Apr & May as Jun not available yet) an increase of 125% in GWP on prior corresponding period and a market share of 1.7% so looks like they are making good progress there. Here is link https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_List.aspx?DF=MBFN&mid=3.2.8 under Home >> Insurers >> General >> Monthly business figures

 

 

[StubbleJumper]

9 hours ago, glider3834 said:

 

 

Using FFH 2020 AR extract (see below), I crunched some numbers on Fairfax's sale of 14% interest in Brit to OMERS for USD 375 mil - works out to be at a multiple of approx 1.5 x NWP and 1.68 x BV - obviously that is just one sub & not necessarily reflective of the rest of the Fairfax insurance business but still interesting

 

 

I wouldn't place too much weight on that particular transaction.  IMO, given the past relationship of OMERS and FFH, that was likely more of a debt transaction than a sale of equity.  The equity position effectively serves as collateral and the money will be "repaid" in a couple of years, likely with the typical 9% coupon.

 

But, the murky nature of FFH's relationship with OMERS aside, FFH definitely looks cheap.

 

 

SJ

 

[Xerxes]

Viking,

At least for Farmer's Edge it is confirmed to be an associate.

If I had to guess, I would put Rocker in the same bucket.

 

"Share of loss of associates of $113 million includes our share of loss from Quess ($125 million, including a $98 million writedown), Astarta ($28 million), Farmers Edge ($22 million) and associates of our non-insurance consolidated investments Fairfax Africa ($74 million) and Fairfax India ($25 million). Offsetting this was our share of profit of Atlas ($116 million) and Peak Achievement ($34 million) and $11 million in net profit from all other 12associates. COVID-19 was a significant contributor to the losses at many of our associates during 2020 due to the global shutdown"

[Viking]

BDT Capital Partners has been a solid performer for Fairfax over the years. Another of Fairfax’s under the radar holdings that just chugs along in anonymity. A well run, solid performing US $631 million holding (at 2020YE) that gets very little press.

 

This is a good example of Fairfax partnering with an external asset manager with a niche focus (family run businesses) and a very good long term track record.

—————————
News today BDT is taking Weber BBQ public. (Just bought a new Weber grill a couple of months ago to replace my old one that was 15 years old) 

- https://www.theglobeandmail.com/business/international-business/us-business/article-outdoor-grills-maker-weber-files-for-us-ipo/

—————————

From 2020AR: “We have invested in BDT Capital Partners since its inception in 2009. Founded by Byron Trott, formerly of Goldman Sachs, BDT provides family and founder-led businesses with long term capital, has raised over $18 billion across its investment funds and manages more than $6 billion of co-investments from its global limited partner investor base. We have invested $647 million, have received cash distributions of $550 million and have a remaining year end market value of $631 million. This is an outstanding return over the long term, and we are looking forward to continuing our partnership going forward. A big thank you to Byron and the BDT team for these outstanding results.”

Edited July 12, 2021 by Viking

[glider3834]

13 hours ago, Viking said:

BDT Capital Partners has been a solid performer for Fairfax over the years. Another of Fairfax’s under the radar holdings that just chugs along in anonymity. A well run, solid performing US $631 million holding (at 2020YE) that gets very little press.

 

This is a good example of Fairfax partnering with an external asset manager with a niche focus (family run businesses) and a very good long term track record.

—————————
News today BDT is taking Weber BBQ public. (Just bought a new Weber grill a couple of months ago to replace my old one that was 15 years old) 

- https://www.theglobeandmail.com/business/international-business/us-business/article-outdoor-grills-maker-weber-files-for-us-ipo/

—————————

From 2020AR: “We have invested in BDT Capital Partners since its inception in 2009. Founded by Byron Trott, formerly of Goldman Sachs, BDT provides family and founder-led businesses with long term capital, has raised over $18 billion across its investment funds and manages more than $6 billion of co-investments from its global limited partner investor base. We have invested $647 million, have received cash distributions of $550 million and have a remaining year end market value of $631 million. This is an outstanding return over the long term, and we are looking forward to continuing our partnership going forward. A big thank you to Byron and the BDT team for these outstanding results.”

impeccable timing thats for sure with this IPO  

[Xerxes]

I like how Prem took some of the wording word for word from BDT mission objective on its site:

 

"Founded in 2009 by Byron Trott, BDT serves as a trusted advisor to closely held companies and owners with world-class capabilities across a variety of areas, including M&A, capital structure optimization, strategic and financial planning, family office, philanthropy and social impact, and next generation transition and development. BDT Capital Partners provides family- and founder-led businesses with long-term, differentiated capital. The firm has raised over USD 18 billion across its investment funds and has created and manages more than USD 6 billion of co-investments from its global limited partner investor base. The firm’s affiliate, BDT & Company, is a merchant bank that works with family- and founder-led businesses to help them achieve their strategic and financial objectives. The firm has offices in Chicago, New York, Los Angeles, London and Frankfurt."

[Viking]

Fairfax owns both consolidated and non consolidated insurance companies. When we discuss Fairfax and insurance we are usually talking about their consolidated companies the largest of which include Odyssey, Allied, Northbridge, Crum, Brit and Zenith. The reporting of the results of these companies is extensive and it is pretty easy for investors to connect the dots. 

 

Fairfax also has significant ownership stakes in a stable of international insurance companies where the results are non consolidated. From a reporting perspective, these holdings seem to have more in common with Fairfax’s stock holdings than their insurance holdings. Given how results are reported in Fairfax’s financial statements, these businesses also seem to fall under he radar of most investors (its kind of like they do not exist). Perhaps i am a dummy; i have a pretty hard time quarter to quarter linking results at these companies with Fairfax results. I think the simple answer is ‘their current value is captured in BV’ and ‘future good results at these companies will be reflected in an increasing BV at Fairfax’.

 

But i like to get into the weeds. And i find it a challenge. How much of Fairfax’s total value is captured by these holdings? 

 

These insurance holdings are large, well run and look poised to do very well in the future and become more important pieces in the Fairfax puzzle. But i am wondering if they simply become hidden assets (especially GIG and Eurolife), similar to First Capital or Riverstone, where their value is largely missed by investors. Fairfax does state on page 11 of the annual report “these are long term strategic assets that we have no plan on selling.”

 

The big 3 non consolidated insurance holdings are (Page 7, 2020 AR):

1.) Digit - 49% ownership (74% when allowed); $405 million gross premiums; 93% CR; $693 million investment portfolio 

- https://www.godigit.com

- https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Announces-Potential-Gains-on-Its-Investment-in-Digit/default.aspx

2.) Gulf Insurance Group (GIG) - 43%; $1.4 billion; 93% CR; $991 million

- http://www.gulfinsgroup.com/Home

- https://www.nsinsurance.com/news/axa-gulf-insurance-group-deal/

3.) Eurolife FFH - 50%; $512 million; 76% CR; $3.685 billion

- https://www.eurolife.gr/en/gnoriste-mas/eurolife-group/

 

Digit is the pink elephant in the room right now that everyone seems to be ignoring. The recent fundraise will result in a $1.8 billion total gain at Fairfax later this year. GIG, with the announced AXA acquisition, is poised to grow gross premiums +60% when the transaction closes (in Q3?) and become one of the largest insurers in MENA. And Fairfax has repeatedly stated it will be increasing its stake in Eurolife (taking out OMERS). 

 

I wonder if Fairfax has simply become too complex for analysts to understand (let alone regular investors).

Edited July 22, 2021 by Viking

[Xerxes]

Men were in the business of empire building since the early days when cavemen were gathering food ... except Barry Diller perhaps. 

 

Looks like it took a major event like the once in a hundred years pandemic for the likes Masayoshi Son or Prem Watsa to change their way, but too often the empire building instincts kicks back in again and again. I don't know what the future holds, but it seems that the transition from asset-gatherer to a CEO that can get a laser focus on shareholder value per share, is usually a bumpy road. Empire builders do not find shrinking the company (i.e. selling assets to fund massive buyback) that exciting, even if it means more absolute wealth and control.

 

For FFH's value to raise on a higher plateau permanently, one of the three things need to happen:

 

    (1)     a large uptick in the insurance business (ala 2001) i wasn't following FFH then, but based based on past conference call, Prem alludes to the period where Odyssey (i think) picked up a lot business

 

    (2)    large investment gain that is monetizable. Not enough to have a home run as paper gain. There has to be clear road/intention to monetization. Financial media loves the sum of the parts stories and conglomerate discount. How many of those famous relative trade actually worked out in a timely fashion.

 

   (3)    re-rating in the bond market. 

 

---------------------

If 1 out of 3 happens, i think we can see a road to a higher plateau in terms of valuation. If 2 out of 3 happens, might even get a premium of book value. If 3 out of 3 happens, go buy lottery.

 ---------------------

 

FFH de-listed from NYSE some years back. I don't know the whole story (related to the hedge fund short sellers i think), but it seems to that by doing that it also removed itself from being "discovered". If it insists it would not want a NYSE listing to get that exposure, perhaps that is a sign that it likes how things are: i.e. being opaque and under the radar.

 

That is why for me, if FFH can deliver 5-7% gain I will be happy. That is my return target allocation of FFH in my portfolio. Digits and all those other things, all they do is to layer up more and more margin of safety into the stock, which is ok as well.

 

[nwoodman]

On 7/1/2021 at 2:44 PM, glider3834 said:

for Digit I have been checking the IRDAI monthly non-life GWP numbers but note that these flash numbers are provisional & unaudited (so not final numbers for Digit) & for 2021-22 YTD which is for just two months as year runs from 1st Apr (so for Apr & May as Jun not available yet) an increase of 125% in GWP on prior corresponding period and a market share of 1.7% so looks like they are making good progress there. Here is link https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_List.aspx?DF=MBFN&mid=3.2.8 under Home >> Insurers >> General >> Monthly business figures

 

Thanks Glider, catching up on some reading and came across your post.  This is a fantastic resource

 

What would be great to know is how much of Digit’s market share are new customers to insurance.  I have a sneaking suspicion that even though Covid has been diabolical for India, it has introduced a decent set of the population to the need for insurance.  Couple this with the low friction option that is Digit and its game on!

Edited July 22, 2021 by nwoodman

[glider3834]

16 hours ago, nwoodman said:

Thanks Glider, catching up on some reading and came across your post.  This is a fantastic resource

 

What would be great to know is how much of Digit’s market share are new customers to insurance.  I have a sneaking suspicion that even though Covid has been diabolical for India, it has introduced a decent set of the population to the need for insurance.  Couple this with the low friction option that is Digit and its game on!

no worries nwoodman

 

I was going to write a response but I think this article sums up some key insights into Digit's potential growth in health insurance. https://kr-asia.com/how-insurtech-startups-in-india-are-increasing-insurance-penetration-in-the-country

 

Here are a few quotes 

 

On health insurance

 

In the first half of FY 2020-21, health insurance premiums occupied the top spot in the non-life insurance segment for the first time in India, according to the General Industry Council.

“When the world was hit with the novel coronavirus, the fear of hospital bills and losing an earning family member to the virus hit the roof. And so did the need to get health protection,” Vivek Chaturvedi, chief marketing officer of Digit Insurance said.

 

A survey conducted by insurance provider Max Bupa last year said there has been a significant shift in the consumer mindset regarding the importance of health insurance coverage. The survey found that 71% of respondents considered health insurance necessary after the pandemic hit the country, compared to just 10% interested in getting insurance before the pandemic.

 

 

Also here is another older article which I think you will find interesting

 

https://yourstory.com/2018/05/rs-350-cr-investment-within-6-months-operations-digit-plans-take-prime-spot/amp

 

Here are a couple of quotes

 

On customer experience

 

“The insurance industry has seen lots of changes in the last 15 years in India. Unlike other sectors, we have not seen insurance companies redefining the customer experience. Further, only 29 percent of insurance customers are satisfied with their current providers, and we hope to change that.” (Kamesh Goyal)

 

On hiring team

 

The company made sure it hired employees not only from the insurance, but from non-insurance backgrounds such as ecommerce, consulting, and technology, among others. In fact, around 53 percent of Digit’s team is from the non-insurance background.

 

 

 

 

 

 

 

 

[petec]

I'd suggest anyone interested in Fairfax reads the Atlas and Stelco call transcripts. Very interesting. 

[Frankie1]

44 minutes ago, petec said:

I'd suggest anyone interested in Fairfax reads the Atlas and Stelco call transcripts. Very interesting. 

stelco

https://produceredition.webcasts.com/viewer/event.jsp?ei=1485527&tp_key=68b9338bb8

[Viking]

In Feb 2018 Fairfax purchased Carillion Canada out of bankruptcy; actually its UK parent went bankrupt and the Canadian division was collateral damage. 2018 was also the year Fairfax purchased Its Stelco shares. I remember thinking at the time… why are they buying shitty businesses like Stelco and Carillion?

 

ok. 3 years later were these good purchases? Yes. Actually both of these purchases are looking like home runs for Fairfax. (Both also just released Q2 results in the past 24 hours.)

 

I think most board members understand that Stelco is looking like a home run investment for Fairfax. On the conference call today Stelco management said they will be announcing something in the next couple of weeks that will be driving the share price higher (as it is undervalued at C$42). Fairfax owns 13 million shares of Stelco (i think their cost - after dividends - is a little under C$20). Fairfax is currently sitting on C$300 million gain in under 3 years (more than 100%). Not too shabby. 
 

But what about that other dog of a purchase… Carillion Canada? In March 2020 Fairfax executed a reverse takeover of Horizon North folding in the Carillion Canada assets. At the time Prem threw out: C$1 billion in revenue and $100 million in EBITDA anually as medium term targets for the combined company… just another example of irrational exuberance on the part of the CEO.
 

At the time i wondered if this reverse takeover was yet another example of Fairfax doubling down on another shitty business (Horizon North) . And then of course the pandemic hit and all i saw was a bug hitting a windshield. All of Dexterra’s businesses (the company was renamed from Horizon North) were impacted mightily and revenue cratered. 
 

So what has happened since March of 2020? Dexterra got through the worst of the pandemic, focussed on free cash flow generation, actually paid down debt and fine tuned and executed on its strategic plan. Their performance the past 12 months has been remarkable. As a result its financial performance is taking off. And that C$1 billion in revenue and $100 million EBITDA pipe dream? My guess is they will hit it in the next 24 months if not sooner.

 

Their revenue run rate is currently about C$800 million. To be completed in Q3, they are reworking their credit facility; cost will be coming down and it will be upsized to fund M&A. Growth moving forward will come from return to more normal operations (at businesses still adversely impacted by pandemic), significant organic growth (with wins already in the pipeline) and targeted M&A. 
- https://dexterra.com/investor-presentations-events/

Fairfax has a carrying value of US$115 million for Dexterra (about C$150 $4.72/share). They own 49% of the company (31.8 million shares). Shares are trading today at C$7.27 = $230million. 
 

My guess is when Dexterra hits $100 million in EBITDA shares will be trading much higher. Let’s assume conservative 7 X EBITDA multiple = market cap = $700 million = $11/ share. 
 

The key with both Stelco and Dexterra is they are both run by what look to me to be very good management teams. Years of hard work finally paying dividends for Fairfax (and investors in Fairfax). 
 

The list of stellar equity decisions/investments made by the Fairfax team in recent years is growing with each passing quarter… 
 

PS: 2018 was also the year Fairfax dropped $1.1 billion into a small shipping company called Seaspan. I know, i know, another terrible investment in another shitty company in a shitty industry  

Edited August 11, 2021 by Viking

[petec]

35 minutes ago, Viking said:

The list of stellar equity decisions/investments made by the Fairfax team in recent years is growing with each passing quarter… 

Well said. Fairfax started turning around years ago. 

[FairFacts]

My largest position (again) ....don't get me wrong....but BB??....why not sell a little just to loosen up their thinking....share price is at a 5 year low excluding the pandemic....I don't know what it will take to catalyze the stock price back to life (above 1x of bv).

 

[Crip1]

26 minutes ago, FairFacts said:

My largest position (again) ....don't get me wrong....but BB??....why not sell a little just to loosen up their thinking....share price is at a 5 year low excluding the pandemic....I don't know what it will take to catalyze the stock price back to life (above 1x of bv).

 

"“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

 

As long as they keep continuing to execute, shares will trade closer to or at a premium of an ascending Book Value. Always happier to see the business doing better than the share price as opposed to the opposite.

 

-Crip

[FairFacts]

“the trend is your friend”, short-term and long-term are relative, “‘the market can stay irrational longer than you can stay solvent”, the long-term is a series of ‘short-terms’, the majority, I sense from the critical thinkers on this board think that things are in the upper looking tragectile. BB and Eurobank ?, Digit the Indian unicorn (PW has poured scorn on these ‘unicorns’), is the whole just a mishmash or over complicated. 
Mr Market may not be as good at pricing everything at the moment due to the WW pandemic and it’s impact. We, as the students of value investing must exercise caution, why do we accept a $54 per share increase in BV due to Digit?

Some say we should buy/hold now and sell into a BV above x1, why? I’m constantly re-reading the AR and the stated “grow BV by 15% per year” leading goal. 

‘if we can’t get to a 1xBV by the end of this year I’m going to unwind……

[Viking]

When the pandemic hit in early 2020 it hit Fairfax’s equity / consolidated holdings especially hard - lots of cyclical, smaller cap and emerging market companies. Earnings at these companies dropped substantially and this flowed through to Fairfax - resulting in lower earnings. 
 

In Q2 we are starting to see top line and earnings results at Fairfax equity / consolidated holdings bounce back. And this benefit is starting to flow through to Fairfax earnings (in various ways). Poor results with the equity / consolidated holdings was a modest headwind (Q2 2020 to Q1 2021) and is now a modest tailwind that should pick up speed in 2H 2021 and into 2022.

 

Stelco: Dividend increased from C$0.10/ share to $0.20. Fairfax owns 13 million shares = C$2.6 million per quarter (increase of $1.3 million). 
Leon’s Furniture: Special dividend announced of C$1.25/share. Fairfax owns 7.2 million shares = C$9 million

 

Dexterra: dividend increased 16.7% to C$0.875. Fairfax owns 31.8 million shares = $2.8 million (+C$500 thousand)

Early June Resolute announced C$1 special dividend. Fairfax owns 24.8 million shares = C$24.8 million.

 

Now Resolute is an Associate holding and Dexterra is a Consolidated holding so i am not sure how the dividend is treated from an accounting perspective by Fairfax. Bottom line, the dividend increase announcements are another positive indicator.

[wondering]

My understanding is that the dividend will go to lower the cost of the investment in Resolute. In other words, it doesn't go to the income statements

[Xerxes]

Cash is cash in my opinion. Whether it is conventional dividend or return of capital special-like dividend, the dividend cash flows. I am personally not too much concern about their different accounting treatment.

 

That being said, while I am all about FFH building businesses or financing them, i don't care that much about the recent growth of dividend stream they receive, because from my perspective they are just moving on the risk-curve for that extra juice. This is not Berkshire investing in an income-machine like Coca Cola and letting that dividend to growth. But nor it should be, I guess, so I wouldn't put to much stock on the dividend growth attribute nor would I window dress it. If it is there, it is just a bonus.

 

The elusive premium to BV that everyone dreams about requires Berkshire-like quality level investment, otherwise it wont be a "sticky" premium. Nor should it be, after all, if as per FFH management own comment "results will be lumpy" statement is truth, so will premium on the BV be "lumpy" too.

Edited August 13, 2021 by Xerxes

[valueinvesting101]

https://www.livemint.com/companies/news/quess-corp-promoters-sells-3-39-stake-worth-rs-450-crore-11628526510033.html

Fairfax investment in Thomas Cook and Quess corp is held via Fairbridge Capital. This is not part of Fairfax India but directly owned by Fairfax.

May be some this capital will be routed to digit or some other investment in India instead of coming back to Fairfax. Bangalore Airport stake held by AAI is also being sold by GoI. May be it will be purchased by Fairfax instead of Fairfax India.