Fairfax stock positions

[Viking]

1 hour ago, valueinvesting101 said:

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.

Thanks for posting  

 

Fairfax owns 47.6 million shares of Quess. At sale price of 900 rupee i think this would put total position in Quess worth about US $575 million (before sale). This is a very large position for Fairfax.
 

3 million shares were sold by Fairfax = 6.3% of total position  for proceeds of about US $36 million. 
 

It will be interesting to see if this transaction is a one off or if it is the start of Fairfax perhaps getting more aggressive in monetizing the significant increases we have seen the past 10 months in most of their equity holdings. 
 

And equally interesting to see is what they do with any proceeds.

 

PS: Quess shares were trading at 400 rupee in Nov of 2020; most of the Indian investments are up +100% as well. Pretty amazing rebound. What is especially encouraging is the business results being delivered by the various Indian investments; Quess had 25% growth in top and bottom lines this past quarter.

Edited August 14, 2021 by Viking

[nwoodman]

Perhaps it is swings and roundabouts, but noticed that Farmers Edge fell off the cliff today.  Don’t follow it at all, any thoughts on why such a massive decline today? Earnings didn’t appear to be much crappier than the IPO docs.  

 

Edited August 14, 2021 by nwoodman

[Viking]

2 hours ago, nwoodman said:

Perhaps it is swings and roundabouts, but noticed that Farmers Edge fell off the cliff today.  Don’t follow it at all, any thoughts on why such a massive decline today? Earnings didn’t appear to be much crappier than the IPO docs.  

 

Yes, i saw the steep sell off today. CFO resigning after 1 year with company? (Former CFO is returning out of retirement). They also made a smallish US acquisition? Strategy issues? Growth issues? Of all of Fairfax’s current equity investments this is the one that i have the least visibility on; to be fair i have also spent very little time on it. I’ll give the Q2 call a listen this weekend  

 

As a reminder, here is what Fairfax had to say about the Farmers Edge IPO in the Q2 report:

 

“During March 2021, Farmers Edge completed an initial public offering for Cdn$143.8 ($113.8). Prior to the initial public offering the company exercised its warrants and converted its convertible debentures for common shares of Farmers Edge and another third party converted its convertible debentures for common shares of Farmers Edge, resulting in the company's controlling equity interest in Farmers Edge increasing to 59.9% on completion of the initial public offering and capital transactions.

Edited August 14, 2021 by Viking

[nwoodman]

Thanks Viking . The market in general seems to be progressively intolerant of any misses etc. That NBF price target of $25 is looking a little optimistic

 

David Patrick, Chief Financial Officer, will be leaving the Company in September 2021 to return to his former employer. The board will be overseeing the search process and Lori Robidoux will act as interim Chief Financial Officer. Ms. Robidoux was the Chief Financial Officer of the Company for approximately six years before retiring a year ago. Wade Barnes, Chief Executive Officer of the Company, said, “I want to thank David for his work and wish him success in his future endeavors. We also welcome Lori back and look forward to working with her during this transition period.”

[bearprowler6]

 Farmers Edge hasn't turned out too well for Fairfax up until now. The IPO for Farmers Edge was completed at $17/share in March of this year. Fairfax owned a little more than 25 million shares at the time of the IPO. The shares closed today at $4.42 resulting in a decline in the value of the Farmers Edge shares held by Fairfax of more than $300 million since the time of the IPO. 

[Viking]

bearprowler, yes, the size of the decline in Farmers Edge has been pretty crazy (share price % and market cap). I just listened to the Q2 conference call. It appears they missed expectations in Q1 and followed that up with another miss in Q2. Sounds to me like they are still in their infancy / trying to figure things out. Like a start up. And selling to farmers, who tend to be a pretty conservative, slow moving group (good luck forecasting technology adoption / carbon capture innovations with that group). And the business is very seasonal and tied to the weather. And if you miss a season (like with a delayed or late new product launch), it can be another 12 months before you get another shot. And it sounds like the competition is heating up. 
 

Bottom line, it will likely be another year before we have an idea what kind of a business Farmers Edge is (product lines, sales, profitability). Bottom line, they might connect on one or more of their products and hit a home run. They certainly have a lot of irons in the fire. Makes sense to me that consolidation will also come in to play at some point. 
——————————-

Does anyone know what Farmers Edge is carried at by Fairfax? I looked in the Q2 report and it is captured in ‘Other’ with a few other companies like Boat Rocker; the ‘Other’ bucket has a total value of US$375 million. 

Edited August 14, 2021 by Viking

[glider3834]

23 hours ago, Viking said:

Does anyone know what Farmers Edge is carried at by Fairfax?

  

@Viking

see below - it looks like Farmers Edge is included under non-insurance companies with Restaurants & Other & adjusted carrying value appears to be calculated as total equity less non-controlling interests of subsidiary (note 2)

 

 

Farmers Edge shareholder equity at Q2 2021 was around $142 mil https://www.businesswire.com/news/home/20210812005924/en/Farmers-Edge-Reports-Second-Quarter-2021-Results

 

So would estimate carrying value as Fairfax ownership share 59.9% x $142 mil = $85 mil

 

 

 

 

[Viking]

Glider, thanks for the details on Farmers Edge. Hopefully Farmers Edge figures things out. Early days. And Fairfax is not going to hit on every investment they make. Was it Peter Lynch who said hitting on 6 out of 10 investments should do the trick? We will see…

Edited August 16, 2021 by Viking

[glider3834]

1 hour ago, Viking said:

Glider, thanks for the details on Farmers Edge. Hopefully Farmers Edge figures things out. Early days. And Fairfax is not going to hit on every investment they make. Was it Peter Lynch who said hitting on 6 out of 10 investments should do the trick? We will see…

sorry Viking I have to correct my estimate- I just looked at the 2020 AR here is quote from Prem

 

'At the IPO value, our investment is worth Cdn$425 million but due to Farmers Edge’s losses over the years, it is carried on our balance sheet at only Cdn$303 million.'

 

I think when Fairfax are looking at adjusted carrying value it is based on total equity in Fairfax's financial statements (not the equity in subsidiary's financial statements) - my mistake!

 

So looks like carrying value CAD303m versus CAD110 market value now on FFH ownership share - potentially an impairment here but maybe too early to say & any impairment depends on FFH valuation/methodology

 

Agreed not every FFH investment will work out , the overall result is really what matters & a lot of earnings report positives from ATCO, STELCO etc  

 

Edited August 16, 2021 by glider3834

[nwoodman]

25 minutes ago, glider3834 said:

sorry Viking I have to correct my estimate- I just looked at the 2020 AR here is quote from Prem

 

'At the IPO value, our investment is worth Cdn$425 million but due to Farmers Edge’s losses over the years, it is carried on our balance sheet at only Cdn$303 million.'

 

I think when Fairfax are looking at adjusted carrying value it is based on total equity in Fairfax's financial statements (not the equity in subsidiary's financial statements) - my mistake!

 

So looks like carrying value CAD303m versus CAD110 market value now on FFH ownership share - potentially an impairment here but maybe too early to say & any impairment depends on FFH valuation/methodology

 

Agreed not every FFH investment will work out , the overall result is really what matters & a lot of earnings report positives from ATCO, STELCO etc  

 

Nice work Glider, I tried my hand at this and couldn’t get the number to reconcile.  Should have gone back to the AR as you did

[glider3834]

21 minutes ago, nwoodman said:

Nice work Glider, I tried my hand at this and couldn’t get the number to reconcile.  Should have gone back to the AR as you did

all good nwoodman - its tricky because Fairfax don't always break out figures for non-insurance subs but put them into buckets like "restaurants & other' (I guess that simplifies the reporting). 

 

I have also found this a challenge in estimating normalised earnings for non-insurance subs too , for example with AGT - I have been unable to determine their pre-tax income. I guess we can use the excess fair value over adjusted carrying value, which is how Fairfax reports, to make any adjustments to book value without trying to pull out the normalised earnings.

Edited August 16, 2021 by glider3834

[Viking]

Glider, not to worry. Getting answers to specific questions can take some time and as better sources are found more accurate answers emerge. Thanks again for figuring this one out   

 

One of the things i am very happy with is Fairfax appears to want its various equity holdings to stand on their own two feet (financially speaking) moving forward. If the equity holdings need cash, get it from somewhere other than Fairfax - the debt markets or via iPO (Farmers Edge and Boat Rocker) not Fairfax. So the equity holdings need to be profitable (generate needed cash internally); this is, of course, the best way to get needed cash . I might be off base, but it appears to me Fairfax has been weaning its equity holdings off of the Fairfax teat for a few years now. I think this was also part of the rational for  fixing / merging problem children like Farifax Africa with Helios and APR with Atlas - find a good solution to a problem that also turns off the cash tap running back to Fairfax. 
 

Of course Fairfax will need to sink $ into some of the equity holdings; Thomas Cook being a recent example (although the $ came with a benefit for Fairfax). 
 

i think we are getting closer to the point where the equity holdings collectively will become solid sources of cash for Fairfax versus significant users of cash (as was often the case in past years).

 

PS: another small example of this is Recipe’s recent sale of Milestone’s restaurants. And their closing of 100 poorly performing locations (various banners). There appears to be a heightened focus on ‘optimization’ and profitability. Recipe wants to grow certain banners and it now needs internally generated profits/money to do so…  Not getting bigger via acquisitions to realize nonexistent synergies. It is a common theme listening to the quarterly calls of the various equity holdings. Optimization/profitability/free cash flow generation. And it is music to my ears

Edited August 16, 2021 by Viking

[glider3834]

2 hours ago, Viking said:

Glider, not to worry. Getting answers to specific questions can take some time and as better sources are found more accurate answers emerge. Thanks again for figuring this one out   

 

One of the things i am very happy with is Fairfax appears to want its various equity holdings to stand on their own two feet (financially speaking) moving forward. If the equity holdings need cash, get it from somewhere other than Fairfax - the debt markets or via iPO (Farmers Edge and Boat Rocker) not Fairfax. So the equity holdings need to be profitable (generate needed cash internally); this is, of course, the best way to get needed cash . I might be off base, but it appears to me Fairfax has been weaning its equity holdings off of the Fairfax teat for a few years now. I think this was also part of the rational for  fixing / merging problem children like Farifax Africa with Helios and APR with Atlas - find a good solution to a problem that also turns off the cash tap running back to Fairfax. 
 

Of course Fairfax will need to sink $ into some of the equity holdings; Thomas Cook being a recent example (although the $ came with a benefit for Fairfax). 
 

i think we are getting closer to the point where the equity holdings collectively will become solid sources of cash for Fairfax versus significant users of cash (as was often the case in past years).

 

PS: another small example of this is Recipe’s recent sale of Milestone’s restaurants. And their closing of 100 poorly performing locations (various banners). There appears to be a heightened focus on ‘optimization’ and profitability. Recipe wants to grow certain banners and it now needs internally generated profits/money to do so…  Not getting bigger via acquisitions to realize nonexistent synergies. It is a common theme listening to the quarterly calls of the various equity holdings. Optimization/profitability/free cash flow generation. And it is music to my ears

no worries Viking  - yes if there is a silver lining with covid, it has resulted in greater focus on operating efficiency/cost reductions (like your good example of Recipe) or opportunity to do important upgrade work (Bangalore International Airport, Stelco) - so these businesses will be leaner, more efficient & hopefully more profitable. 

 

Yes agreed that Farmers Edge, Boat rocker have been strengthened through the IPO process & that was the right move.

 

Really impressed by Stelco results too - after listening to conference call, looking at (very smart) recent share buyback which should take Fairfax's shareholding closer to 17% - management doing outstanding job - I can see why Fairfax are sticking to their guns & holding this one. 

 

 

Edited August 16, 2021 by glider3834

[petec]

7 hours ago, Viking said:

One of the things i am very happy with is Fairfax appears to want its various equity holdings to stand on their own two feet (financially speaking) moving forward.

 

+1 - I think this is key.

 

7 hours ago, Viking said:

Of course Fairfax will need to sink $ into some of the equity holdings; Thomas Cook being a recent example (although the $ came with a benefit for Fairfax). 

 

I missed this. What happened?

[nwoodman]

And the cash comes rolling in, well kinda.  Hope it goes on buybacks

 

https://ir.atlascorporation.com/2021-08-16-Seaspan-to-Redeem-Remaining-Fairfax-Senior-Notes

 

LONDON, Aug. 16, 2021 /CNW/ - Seaspan Corporation, a wholly owned subsidiary of Atlas Corp. ("Atlas") (NYSE: ATCO), today announced its intention to redeem all of its remaining 5.50% senior notes held by certain affiliates of Fairfax Financial Holdings Limited ("Fairfax"), including $250 million of 5.50% senior notes due 2025 (the "2025 Notes") and $50 million of 5.50% senior notes due 2026 (the "2026 Notes" and together with the 2025 Notes, the "Fairfax Notes"), for cash on August 23, 2021 (the "Redemption Date"). The redemption price per Fairfax Note will be equal to $1,000.00 plus all accrued and unpaid interest thereon from and including July 30, 2021 to the Redemption Date.

 

Graham Talbot, CFO of Atlas, commented, "We are very appreciative of our partnership with Fairfax and the strong support they have provided. The investments made by Fairfax have helped to strengthen the company and create the significant momentum in the business that we have today. The redemption of these notes reflects Fairfax's continuing support as we mature and diversify Atlas' global investor base and increase access to capital market opportunities. This is also a further step in our ongoing efforts to simplify and optimize our capital structure."

[TwoCitiesCapital]

1 hour ago, nwoodman said:

And the cash comes rolling in, well kinda.  Hope it goes on buybacks

 

https://ir.atlascorporation.com/2021-08-16-Seaspan-to-Redeem-Remaining-Fairfax-Senior-Notes

 

LONDON, Aug. 16, 2021 /CNW/ - Seaspan Corporation, a wholly owned subsidiary of Atlas Corp. ("Atlas") (NYSE: ATCO), today announced its intention to redeem all of its remaining 5.50% senior notes held by certain affiliates of Fairfax Financial Holdings Limited ("Fairfax"), including $250 million of 5.50% senior notes due 2025 (the "2025 Notes") and $50 million of 5.50% senior notes due 2026 (the "2026 Notes" and together with the 2025 Notes, the "Fairfax Notes"), for cash on August 23, 2021 (the "Redemption Date"). The redemption price per Fairfax Note will be equal to $1,000.00 plus all accrued and unpaid interest thereon from and including July 30, 2021 to the Redemption Date.

 

Graham Talbot, CFO of Atlas, commented, "We are very appreciative of our partnership with Fairfax and the strong support they have provided. The investments made by Fairfax have helped to strengthen the company and create the significant momentum in the business that we have today. The redemption of these notes reflects Fairfax's continuing support as we mature and diversify Atlas' global investor base and increase access to capital market opportunities. This is also a further step in our ongoing efforts to simplify and optimize our capital structure."

 

Fingers crossed for  $300 million share repurchase. 

 

Otherwise, I'm not terribly excited about the return of capital that was invested at 5.5% yields

[petec]

The only cash that can be spent on buybacks are sales of insurance subsidiaries by the holding company, or dividends from an insurance sub to the holdco. 
 

This is the repayment of a loan from an insurance sub to an investee. Unless it’s dividended to the holdco, which it won’t be because that would deplete insureco capital, it can’t be used for repurchase. 

[Viking]

4 hours ago, petec said:

 

+1 - I think this is key.

 

 

I missed this. What happened?

Petec, i like to follow what Fairfax is spending new $ on. Here are two purchases in Q1 and one from Q2 and one from Q3. The Mosaic transaction is also interesting; no new money involved here (I have no opinion). I really like the investments in Singapore Re and Eurolife; no brainers with high probability of working out for Fairfax shareholders in the future. Singapore Re will likely allow Fairfax to scale up Its business in Asia. And Eurolife looks like a cash machine and fits with Eurobank (who owns the remaining 20%).  I know very little about Helios so have no opinion on that investment. Thomas Cook India is currently a distressed asset (and will be until India gets to the other side of covid). Bottom line, i see no red flags with how the cash is being spent at Fairfax.

 

1.) Thomas Cook India preferred shares
During the first quarter of 2021 the company invested $60.0 in Thomas Cook India preferred shares through a private placement. This intercompany shareholding is eliminated in the company's consolidated financial reporting.

 

2.) HFP unsecured debentures and warrants
On March 31, 2021 the company invested $100.0 in HFP unsecured debentures and warrants as described in note 6.

 

In Q2:

 

3.) Additional investment in Singapore Reinsurance Corporation Limited
On June 17, 2021 the company increased its ownership interest in Singapore Reinsurance Corporation Limited ("Singapore Re") from 28.2% to 94.0% for $102.9 (SGD 138.0) through the completion of a public cash offer and commenced consolidating the assets, liabilities and results of operations of Singapore Re in the Fairfax Asia reporting segment. Singapore Re is a general property and casualty reinsurer that underwrites business primarily in southeast Asia.

In Q3

4.) Acquisition of Eurolife FFH Insurance Group Holdings S.A.
On July 14, 2021 the company increased its interest in Eurolife FFH Insurance Group Holdings S.A. ("Eurolife") to 80.0% from 50.0% by acquiring the joint venture interest of OMERS, the pension plan for Ontario’s municipal employees, for cash consideration of $142.6 (€120.7). The remaining 20.0% equity interest in Eurolife continues to be owned by the company's associate Eurobank. The company will commence consolidating the assets, liabilities and results of operations of Eurolife in its consolidated financial reporting in the third quarter of 2021. Eurolife is a Greek insurer which distributes its life and non-life insurance products and services through Eurobank’s network.

————————-

The Mosaic transaction is material, although does not involve spending new cash: 

 

Proposed privatization of Mosaic Capital Corporation
On June 25, 2021 Mosaic Capital entered into a privatization arrangement with a third party purchaser pursuant to which the company will exchange its current holdings of Mosaic Capital debentures and warrants, and cash of approximately $11 (Cdn$13.3), for approximately $132 (Cdn$163.3) of newly issued Mosaic Capital 25-year debentures. The company will also acquire a 20.0% interest in the purchaser for approximately $4 (Cdn$5.0). Closing of the transaction is subject to regulatory and shareholder approvals and is expected to occur in the third quarter of 2021. The company anticipates that upon closing it will deconsolidate Mosaic Capital and commence applying the equity method of accounting to its interest in the purchaser in its consolidated financial reporting. Accordingly, at June 30, 2021 Mosaic Capital's assets of $185.5 and liabilities of $109.4, comprised principally of accounts receivable, intangibles, borrowings and accounts payable and accrued liabilities, were presented on the company's consolidated balance sheet in assets held for sale and liabilities associated with assets held for sale respectively.

[TwoCitiesCapital]

32 minutes ago, petec said:

The only cash that can be spent on buybacks are sales of insurance subsidiaries by the holding company, or dividends from an insurance sub to the holdco. 
 

This is the repayment of a loan from an insurance sub to an investee. Unless it’s dividended to the holdco, which it won’t be because that would deplete insureco capital, it can’t be used for repurchase. 

 

Sure, but there's nothing to say that it can't be paid up to the parent co, right? They're all fairly well capitalized and Allied is already paying dividends out to its minority holders to reduce their commitments. 

 

From Q2 earnings report: 

Quote

The holding company expects to continue to receive investment management and administration fees from its insurance and reinsurance subsidiaries, investment income on its holdings of cash and investments, and dividends from its insurance and reinsurance subsidiaries

 

Edited August 16, 2021 by TwoCitiesCapital

[omagh]

13F is available here...

https://www.sec.gov/Archives/edgar/data/915191/000110465921105455/xslForm13F_X01/a21-24338_1informationtable.xml

[petec]

3 hours ago, TwoCitiesCapital said:

 

Sure, but there's nothing to say that it can't be paid up to the parent co, right? They're all fairly well capitalized and Allied is already paying dividends out to its minority holders to reduce their commitments. 

 

From Q2 earnings report: 

 

They could dividend it up, but my guess is they won’t until the hard market ends. And if they do, they’ll dividend excess capital, which logically comes from realised profits, of which there are none on the payback of debt at par. So my guess is that yours is a forlorn hope!

[glider3834]

6 hours ago, omagh said:

13F is available here...

https://www.sec.gov/Archives/edgar/data/915191/000110465921105455/xslForm13F_X01/a21-24338_1informationtable.xml

doesn't appear to be any changes in their top 15 positions apart from an 80% reduction in MCFT holding - you can see quarterly changes here  https://fintel.io/i13f/fairfax-financial-holdings-ltd-can/2021-06-30-0

[petec]

20 hours ago, Viking said:

Petec, i like to follow what Fairfax is spending new $ on. Here are two purchases in Q1 and one from Q2 and one from Q3.

 

I forgot to say that there is another potentially significant one, which is the $100m invested in 55.5m common shares of Foran Mining, plus warrants to buy 16m more. Fully exercised that gives Fairfax about 25% of the company, which is drilling up a copper deposit with promising results: foran_results_-_four_infill_holes_290721_final.pdf (foranmining.com)

 

Clearly this is risky, but it could also turn into a huge win. Fairfax paid $1.80 per share and the shares are at $2.12 now, so they already have a paper gain (and effectively got the warrants, which exercise at $2.09, for free).

 

Pierre Lassonde owns nearly 10% for Foran, for what that's worth. 

[cwericb]

2 hours ago, petec said:

Pierre Lassonde owns nearly 10% for Foran, for what that's worth. 

https://en.wikipedia.org/wiki/Pierre_Lassonde

 

Pretty impressive resume.

[petec]

31 minutes ago, cwericb said:

https://en.wikipedia.org/wiki/Pierre_Lassonde

 

Pretty impressive resume.

 

Yes, he's done ok!