Fairfax stock positions

[bearprowler6]

36 minutes ago, Parsad said:

 

Yes, because you saw the pandemic coming, correct?  Suddenly, some of their insurers had to book losses from the pandemic and their equity portfolios took a hit...something probably unaccounted for like 9/11 was for insurers.  

 

Fairfax had $1.7B in cash at September 30, 2019, which dropped to about $1.1B at December 31, 2019 because they paid $600M in insurance debt.  That's why they had to reborrow and issue more debt in 2020 to inject capital into the subs after $400M in Covid losses and $1B in equity losses.  As well as keep over $2B in cash because liquidity was drying up across the world.

 

The UK runoff business sale was announced well before the pandemic...nothing to do with bankers or statutory capital.  Get your facts straight!  Cheers!

I believe its you that needs to "Get your facts straight"!

 

My original post clearly referred to the sale of the UK run off business to CVC which was announced by way of a press release issued on Dec 2/20; which is clearly "well after the pandemic"!

 

The original sale of a  40% interest in Riverstone UK to OMERS (surprise surprise) which was announced on Dec 12/19; closed on March 31/20 (a date also after the start of the pandemic). This sale transaction to OMERS was not the subject of my original post. 

 

Bottom line----Fairfax raised new debt at the holdco level and also sold off the remainder of its UK run-off business and a portion of Brit. These steps were needed in order to inject the capital into its insurance subsidiaries and also to maintain the necessary holdco cash level.

Edited October 9, 2021 by bearprowler6

[Gregmal]

1 hour ago, Parsad said:

 

The stock will do over 50% regardless...just reversion to book will do that!  So you're not really adding anything!

 

15% compounded on $595 USD book over two years gives $786 USD...was trading at $393 USD on Monday.  I say 100% return or better by October 2023 at the latest...barring a massive catastrophe or market crash.    

 

Cheers!

Eh, IDK. I dont think the broader markets do a whole lot over the next couple years. Maybe 10% a year or so but nothing special. Saying FFH will outperform the index by 40% a year no with real corporate actions or changes is a little bit fo a stretch, no?

[Parsad]

46 minutes ago, bearprowler6 said:

I believe its you that needs to "Get your facts straight"!

 

My original post clearly referred to the sale of the UK run off business to CVC which was announced by way of a press release issued on Dec 2/20; which is clearly "well after the pandemic"!

 

The original sale of a  40% interest in Riverstone UK to OMERS (surprise surprise) which was announced on Dec 12/19; closed on March 31/20 (a date also after the start of the pandemic). This sale transaction to OMERS was not the subject of my original post. 

 

Bottom line----Fairfax raised new debt at the holdco level and also sold off the remainder of its UK run-off business and a portion of Brit. These steps were needed in order to inject the capital into its insurance subsidiaries and also to maintain the necessary holdco cash level.

 

No, you need to make clear what you are saying.  You insinuated that the sale of the UK runoff was due to capital requirements and banker's debt requirements.   

 

In the December 2019 press release where they announced the 40% sale of the UK runoff to OMERS, Fairfax clearly states that:

 

Upon completion of the transaction, Fairfax will deconsolidate the UK run-off group and apply the equity method of accounting for its remaining interest. Fairfax may further monetize its remaining interest in UK run-off in the future although the company also retains the flexibility to repurchase its interest over time.

 

Nothing to do with Covid, statutory capital, or bankers.  They've always looked for flexible financing, especially when it is advantageous to them or they are getting a premium price.  

 

So can the BS and stick to the actual facts!  Cheers!

[Parsad]

13 minutes ago, Gregmal said:

Eh, IDK. I dont think the broader markets do a whole lot over the next couple years. Maybe 10% a year or so but nothing special. Saying FFH will outperform the index by 40% a year no with real corporate actions or changes is a little bit fo a stretch, no?

 

I don't know, is it? 

 

In case it's hard to tell by the chart, the return from October 2006 to May 2010 was 243%, while the S&P500 was essentially zero. 

 

Yes, results were juiced by CDS, but you don't need juiced results to get to 100% in two years from today.  Especially since the stock was trading above book value at the end of 2006 and slightly below book value mid-2010.

 

We're starting at 0.7 times book now...that's nearly 50% of upside without any additional growth in book. 

 

Like I said, barring any massive catastrophe or market meltdown, things look good for Prem and FFH.  Cheers!

 

[omagh]

17 hours ago, Parsad said:

 

The stock will do over 50% regardless...just reversion to book will do that!  So you're not really adding anything!

 

15% compounded on $595 USD book over two years gives $786 USD...was trading at $393 USD on Monday.  I say 100% return or better by October 2023 at the latest...barring a massive catastrophe or market crash.    

 

Cheers!

15%...let's put some reality to that.

 

http://financials.morningstar.com/balance-sheet/bs.html?t=FFH&region=can&culture=en-US

 

So over the last 4 years, FFH compounded BV at 9%.  Except that it issued $2.2B in equity capital after the first year, so excluding that capital raise, the BV compounded at a 4.4% rate.  Per share values will be modestly higher than 4.4% but I'll leave that for someone with a calculator and ambition.

[Viking]

Well lumber prices, after bottoming out at US$500 in August, are moving higher once again and have just topped $700. 
 

Lumber is proving to be the posted child for ‘cyclical’. The interesting thing for investors is in the last bull market in lumber (2018) prices PEAKED at $600. At todays pricing of $700 lumber companies are once again making lots of money. And the recent run up in prices looks like it might continue for a while. 
 

The supply / demand picture for lumber is VERY constructive. New home construction is very strong and looks poised to stay strong for the next couple of years. BC, the historic swing producer in NA, is reducing capacity (lack of logs) and will be for years to come. Bottom line, lumber prices are likely to remain much higher (on average) than their historic levels for the next couple of years.
 

What does this have to do with Fairfax? Well, they own a big chunk of one of the largest lumber producers in North America: Resolute Forest Products. 
———————-

Fairfax owns 30.5 million shares of RFP. 
With shares at US$13, market value = US$400 million
With 79 million outstanding, ownership = 39%

Market cap = US$1 billion

TTM Adj. EBITDA = $935 (yes, that number is right

Total Debt = reduced to $303 million (rate of 4.95%)

Net debt = $125 million (June 30)

Cash Lumber Duties on deposit = $332 million

Duty increasing from 20 to 30% on US sales (timing?)

Pension Deficit = $445 (down $184 last 6 months)

Significant US tax attributes of $2.5 billion pre tax

————————

And Resolute just named a new person to their board. Who? Some guy named Duncan Davies. “Mr. Davies will succeed Bradley P. Martin as the company's non-executive chairman. Mr. Martin of Fairfax Financial Holdings Limited will continue to serve as vice chairman of Resolute's now eight-member board.”

- https://resolutefp.mediaroom.com/2021-09-13-Duncan-K-Davies-Named-Chairman-of-the-Board-of-Resolute

 

Who is Duncan Davies? He was President and CEO of Interfor for 20 years (until 2019) growing it into one of the largest pure play lumber companies in NA. Before joining Interfor he was an investment banker. He lead the strategic pivot at Interfor into the US South and Pacific Northwest which in hindsight was brilliant.

- https://financialpost.com/commodities/agriculture/id-work-forever-but-thats-not-fair-interfor-announces-leadership-change-amid-headwinds

 

What does this mean for Resolute? This just confirms the company recognizes that lumber is the present and future of the company.

 

BC is home to three of the top 4 lumber producers in North America (West Fraser, Canfor and Interfor). It is very smart of Resolute to tap into that knowledge base as they are still early days in their pivot to lumber.

 

It also looks like Resolute might be looking to grow in lumber via M&A. In their most recent company presentation there is a slide ‘Capital Allocation: Top Priorities’. Listed at the top of the list is ‘Acquisition opportunities – lumber and pulp at the right price’

https://www.resolutefp.com/uploadedFiles/Investors/Presentations_and_Webcasts/Presentation_Items/RFP-TD-Securities-Paper-Forest-Products-Conference- 2021-08-29.pdf

 

I think i will get out the popcorn and start watching what is going on with lumber futures again  

———————————

Where will M&A opportunities come from? Perhaps further consolidation of wood markets (log baskets, lumber and pulp mills) in Ontario/Quebec. Another poster introduced a new player - GreenFirst - their deal with Rayonier just closed (old assets of Tembec). Their Chairman of the Board is some guy named Paul Rivett

- https://www.newswire.ca/news-releases/greenfirst-completes-acquisition-of-rayonier-forest-and-paper-product-assets-834363239.html

Rayonier purchase of Tembec in 2017

- https://www.northernontariobusiness.com/industry-news/forestry/tembec-acquired-by-florida-cellulose-maker-624608

 

 

 

Edited October 10, 2021 by Viking

[glider3834]

9 hours ago, omagh said:

15%...let's put some reality to that.

 

http://financials.morningstar.com/balance-sheet/bs.html?t=FFH&region=can&culture=en-US

 

So over the last 4 years, FFH compounded BV at 9%.  Except that it issued $2.2B in equity capital after the first year, so excluding that capital raise, the BV compounded at a 4.4% rate.  Per share values will be modestly higher than 4.4% but I'll leave that for someone with a calculator and ambition.

omagh your calcs look wrong - they issued 5.1 mil shares at a 6% premium to BV to buy Allied World which effectively increased their BVPS by 1%, but you are suggesting they received a 20% approx boost to BVPS (4.6% compounded over 4 years) from issuing those shares.

 

I would also say capital management & how you fund your business (with equity or debt)  matters and I don't think BVPS growth that occurs, as result of buybacks or  share issues, should be ignored when we evaluate performance. But I would probably agree that BVPS growth that is result of organic operating performance should be given a greater value weighting than BVPS growth that comes from equity issues at premium to BV.

 

I think if you look across Fairfax's business in 2017 & compare it operationally/financial performance wise to 2021 you are comparing two different animals.

 

Digit - 2017 had just opened its doors, in 2021 Digit was ranked for the 3rd year in the top 250 fintechs in the world.

 

Atlas - 2017 first debt investment, over next 3 years 2022-2024 Fairfax could potentially receive a profit share (approx 47% stake unchanged) averaging around $280 mil based Atlas profit forecasts (below from Atlas Q2 21 presentation) on cash flows that are already contracted to their customers.

 

 

From Mar-20 until now we have been dealing with a covid pandemic & just starting to get vaccination levels to a point where countries can start open up & get back to normal - this has had a huge impact on Fairfax's insurance underwriting and investments - the negative impact over next 4 years from covid will in all probably be a lot less 

 

So I think looking at the annual report & grabbing a few numbers & extrapolating that based on those numbers the next 4 years will look the same, without considering any of the business drivers (eg hard market, less impact from covid, investee performance etc) that will actually generate that BVPS growth, its unlikely to provide IMO the right insights you need to predict Fairfax's likely valuation/performance. Yes history matters but you need to put it in a context. 

 

 

 

 

 

 

 

 

Edited October 10, 2021 by glider3834

[glider3834]

4 hours ago, Viking said:

Well lumber prices, after bottoming out at US$500 in August, are moving higher once again and have just topped $700. 
 

Lumber is proving to be the posted child for ‘cyclical’. The interesting thing for investors is in the last bull market in lumber (2018) prices PEAKED at $600. At todays pricing of $700 lumber companies are once again making lots of money. And the recent run up in prices looks like it might continue for a while. 
 

The supply / demand picture for lumber is VERY constructive. New home construction is very strong and looks poised to stay strong for the next couple of years. BC, the historic swing producer in NA, is reducing capacity (lack of logs) and will be for years to come. Bottom line, lumber prices are likely to remain much higher (on average) than their historic levels for the next couple of years.
 

What does this have to do with Fairfax? Well, they own a big chunk of one of the largest lumber producers in North America: Resolute Forest Products. 
———————-

Fairfax owns 30.5 million shares of RFP. 
With shares at US$13, market value = $400 million
With 79 million outstanding, ownership = 39%

————————

And Resolute just named a new person to their board. Who? Some guy named Duncan Davies. “Mr. Davies will succeed Bradley P. Martin as the company's non-executive chairman. Mr. Martin of Fairfax Financial Holdings Limited will continue to serve as vice chairman of Resolute's now eight-member board.”

- https://resolutefp.mediaroom.com/2021-09-13-Duncan-K-Davies-Named-Chairman-of-the-Board-of-Resolute

 

Who is Duncan Davies? He was President and CEO of Interfor for 20 years (until 2019) growing it into one of the largest pure play lumber companies in NA. Before joining Interfor he was an investment banker. He lead the strategic pivot at Interfor into the US South and Pacific Northwest which in hindsight was brilliant.

- https://financialpost.com/commodities/agriculture/id-work-forever-but-thats-not-fair-interfor-announces-leadership-change-amid-headwinds

 

What does this mean for Resolute? This just confirms the company recognizes that lumber is the present and future of the company.

 

BC is home to three of the top 4 lumber producers in North America (West Fraser, Canfor and Interfor). It is very smart of Resolute to tap into that knowledge base as they are still early days in their pivot to lumber.

 

It also looks like Resolute might be looking to grow in lumber via M&A. In their most recent company presentation there is a slide ‘Capital Allocation: Top Priorities’. Listed at the top of the list is ‘Acquisition opportunities – lumber and pulp at the right price’

https://www.resolutefp.com/uploadedFiles/Investors/Presentations_and_Webcasts/Presentation_Items/RFP-TD-Securities-Paper-Forest-Products-Conference- 2021-08-29.pdf

 

I think i will get out the popcorn and start watching what is going on with lumber futures again  

———————————

Where will M&A opportunities come from? Perhaps further consolidation of wood markets (log baskets, lumber and pulp mills) in Ontario/Quebec. Another poster introduced a new player - GreenFirst - their deal with Rayonier just closed (old assets of Tembec). Their Chairman of the Board is some guy named Paul Rivett

- https://www.newswire.ca/news-releases/greenfirst-completes-acquisition-of-rayonier-forest-and-paper-product-assets-834363239.html

Rayonier purchase of Tembec in 2017

- https://www.northernontariobusiness.com/industry-news/forestry/tembec-acquired-by-florida-cellulose-maker-624608

 

 

 

interesting thanks Viking

[FairFacts]

RFP up 8% today on double normal volumes.

[glider3834]

article on Eurobank 

 

The head of Eurobank underlined the very positive climate for the economy, the consolidation of the banks and the large amount of available funds for investments.

https://www.businessdaily.gr/english-edition/50561_eurobank-ceo-greece-see-strongest-growth-sixties

[nwoodman]

6 hours ago, glider3834 said:

article on Eurobank 

 

The head of Eurobank underlined the very positive climate for the economy, the consolidation of the banks and the large amount of available funds for investments.

https://www.businessdaily.gr/english-edition/50561_eurobank-ceo-greece-see-strongest-growth-sixties

 

Thanks for the link.  Another investment that has been 10 years in the making.

 

“Via the great, ten-year ordeal, Greek companies endured, adapted and several (this is often overlooked) expanded and developed, having formed characteristics that allow them today, in the development phase, to look very high. 

 

And turn they have.  FFH may have been too early/wrong with their investment in 2014.  It doesn't matter now, the future of Eurobank is looking mighty bright.

 

At Eurobank, we are happy that we were the first to open the way and everyone followed. And we are the first to have reached the 3rd quarter of 2021 with a single-digit NPL index of 7.5%," he noted.

 

Graph below is from the 1H21 presentation, looks like they are still on track

Update on Project Mexico

 

UPDATE 1-Eurobank signs deal with doValue to sell bad loan portfolio notes (yahoo.com)

 

Edited October 12, 2021 by nwoodman

[Viking]

53 minutes ago, nwoodman said:

 

Thanks for the link.  Another investment that has been 10 years in the making.

 

“Via the great, ten-year ordeal, Greek companies endured, adapted and several (this is often overlooked) expanded and developed, having formed characteristics that allow them today, in the development phase, to look very high. 

 

And turn they have.  FFH may have been too early/wrong with their investment in 2014.  It doesn't matter now, the future of Eurobank is looking mighty bright.

 

At Eurobank, we are happy that we were the first to open the way and everyone followed. And we are the first to have reached the 3rd quarter of 2021 with a single-digit NPL index of 7.5%," he noted.

 

Graph below is from the 1H21 presentation, looks like they are still on track

Update on Project Mexico

 

UPDATE 1-Eurobank signs deal with doValue to sell bad loan portfolio notes (yahoo.com)

 

@nwoodman, yes, Eurobank is poised to do very well moving forward. NPL are down considerably to 7.5% (from +30% a few years ago); the balance sheet is largely finally fixed. Property prices in Greece have been increasing for years with no let down during covid; and Eurobank has a significant and very profitable real estate business (formerly know as Grivalia and before that Eurobank Properties). Greek GDP is expected to grow 6% in 2022. The government is very pro business driving through many needed reforms. 
 

Bottom line, it reminds me of the situation with big US banks in 2016. Everyone hated the banks. Shitty past returns. Run by crooks. Turnaround was taking too long… 6 years and counting! Dogs with fleas.
 

And then earnings popped. Then the market multiple increased. And the stocks rocked. The caterpillars had turned into butterflies. And now everyone loves Jamie D. and Brian M. - such great CEO’s  smooch
 

In 2022 it looks like we are at the ‘earnings pop’ stage with Eurobank. After Atlas, my guess is Eurobank will deliver the largest increase in value to Fairfax shareholders in 2022. 

 

Edited October 12, 2021 by Viking

[petec]

6 hours ago, Viking said:

After Atlas, my guess is Eurobank will deliver the largest increase in value to Fairfax shareholders in 2022. 

Agreed. I also wonder if the Cairo notes might have some value over time.

[FairFacts]

BlackBerry

The Trade: BlackBerry Limited (NYSE: BB) President and COO Tom Eacobacci sold a total of 171300 shares at an average price of $9.35. The insider received $1,601,655.00 from selling those shares.

 

(copied from yahoo).

[cwericb]

6 hours ago, FairFacts said:

BlackBerry

The Trade: BlackBerry Limited (NYSE: BB) President and COO Tom Eacobacci sold a total of 171300 shares at an average price of $9.35. The insider received $1,601,655.00 from selling those shares.

 

(copied from yahoo).

So that would tend to end any thoughts that Prem was hanging on to BB because he had inside information that something big was upcoming and that was his reason for not selling. I for one, am running our of excuses for him. So why is FFH seemingly making no attempt to sell shares? Isn't this the second sell by BB insiders recently?

[StubbleJumper]

1 hour ago, cwericb said:

So that would tend to end any thoughts that Prem was hanging on to BB because he had inside information that something big was upcoming and that was his reason for not selling. I for one, am running our of excuses for him. So why is FFH seemingly making no attempt to sell shares? Isn't this the second sell by BB insiders recently?

 

I'm not sure it completely ends those thoughts, but it does seriously cast doubt over the insider information hypothesis.  There is always the possibility that the sale of shares was motivated by the need for cash (ie, maybe the guy is getting divorced and needs to pay out his wife, or maybe the guy is building a summer home on Lake Muskoka).

 

At this point, the fact that FFH still holds BB tells me that Prem wants to hold BB, meaning it's an active decision, for better or for worse.

 

 

SJ

[cwericb]

Or, given the number of shares held by FFH it might not be that easy to sell without driving the price down. Like has been mentioned, it may well be that he is looking for a buyer of all the shares.

Then again, it may simply an ego thing.

[glider3834]

On 9/26/2021 at 10:22 PM, petec said:

I just remembered this: https://www.fairfax.ca/news/press-releases/press-release-details/2020/Fairfax-Announces-Entering-Into-Swap-Contracts-in-Respect-of-Common-Shares-of-Ensign/default.aspx

 

Ensign is highly levered, so if higher oil and gas prices lead to higher rig utilisation and higher day rates, which I regard as a virtual certainty regardless of ESG, there is considerable equity upside. 
 

Between Ensign and Exco, Fairfax has nearly $300 of book value exposure and potential upside in the hundreds of millions if they can monetize. 

plus they have a bit more oil & gas exposure through their limited partnerships investment

 

[Xerxes]

Glass half-full:

 

You folks are being overly pessimistic, maybe, just maybe, the Blackberry executive-gentleman thinks Blackberry has good potential, but also maybe he has been watching YouTube Motely Fool videos on the diversification. So, to kind of hedge his bet, he decided to sell his Blackberry shares and re-direct those funds into buying an undervalued Fairfax itself at a good price, thereby holding Blackberry indirectly.

 

 

[Gregmal]

Prem is just playing 4D chess. He’s hidden from the market his experience and expertise in tech. He’s even purposely made some bad investments just to throw off anyone hot on his trail with respect to his secret tech talents. Obviously BB is the next Apple. Don’t doubt, or pout. Have faith….FFH is the next Naspers. Between Digit and BB pretty soon you’ll be able to buy BB shares at a 20% discount to market through simply purchasing FFH shares and better yet you’ll get everything else at FFH for free.

[Viking]

Greece has been an interesting geography for Fairfax for the last decade. And given the size of Fairfax’s two Greek investments (Eurobank and Eurolife) I thought it would be interesting to dust off a few old annual reports and learn a little more about how Fairfax got to where it is today.

 

Fairfax’s 10 year history in Greece has had a couple of triumphs (Grivalia, Eurolife), one catastrophe (initial investment in Eurobank), continuing adversity and perseverance, heroes, villains, a depression, a pestilence, loyalty, creativity (merger of Praktiker with Eurolife) and years of hard work - it all reads like one of the books of the Iliad by Homer.

 

So what does Fairfax have in Greece today?

• Eurolife: 80% ownership of a well managed and profitable insurance company; has about 10% marketshare in Greece.
• Eurobank: 32.4% ownership of a well managed bank that includes a very large and profitable property company (former Grivalia); its balance sheet fixed and profitability poised to jump as the Greek economy improves and real estate prices continue their multi-year move higher.
• Praktiker: 100% ownership - a Home Depot type business? Much smaller than the other two listed above.

————————

Eurobank

• Dec 31 2019 - Fair Value $1,164.4 million; Carrying Value (associates) $1,164.4; share of profit n/a
• Dec 31 2020 - Fair Value $799.9 million; Carrying Value (associates) $1,166.3; share of profit (-11.9)

Eurolife

• Dec 31 2019 50% ownership - Fair Value 403.1 million; share of profit $154.8
• Dec 31 2020 50% ownership - Fair Value 457.9 million; Carrying Value (associates) 336.2; share of profit 6.1

—————————

Below is a short summary of the odyssey of how Fairfax got to where it is today with its 3 large Greek investments. 3 investments? Read on…

 

All good stories always start at the beginning. So…

 

Why did Fairfax invest in Greece? Answer: Ireland. What?

 

Fairfax had outstanding success investing in a distressed Irish bank (Bank of Ireland) in late 2011 after the Great Financial Crisis (I think they made +$800 million on this investment - tripled their money in a little over 5 years). And business partner, Kennedy Wilson, had great success investing in real estate in Dublin. So as the cash register was ringing on their Irish investment Fairfax saw similar opportunities in Greece.

 

What was the timeline of the Greek purchases?

2011: purchased 3.8% position in Grivalia (Europroperties)

• run by George Chryssiko who is one of the heroes of this story
• the Greek journey begins

Aug 2012: Grivalia (Eurobank Properties REIT) - Fairfax increased ownership from 3.8 to 18% for $50 million

2013: Grivalia (Eurobank Properties REIT) - Fairfax increased ownership to 41% for $20 million (plus?)

Dec 2014: Eurobank: Fairfax makes initial investment of 400 million Euro with group of investors (including Brookfield, Wilbur Ross, Fidelity, Mackenzie, Capital Research and Management)

• unemployment rate in Greece in 2014 is 28%!

Nov 2015: Eurobank recapitalization (forced by ECB, definitely one of the villains of our story Fairfax invests an additional 350 million Euro; ownership increases from 12.5% to 17%. 1 for 100 reverse share split; sold new shares for 1 euro.

Aug 2016: Eurolife: Fairfax purchases 80% ownership; 40% to Fairfax for $181 million and 40% to OMERS for $181 million.

• purchased from Eurobank. Fairfax was aided in its bid by its ownership in Eurobank (viewed as being good partner); important to Eurobank because the bank was retaining 20% ownership and much of Eurolife’s business was transacted through Eurobank distribution channels.
• referendum in Greece in 2015; Tsipras/Syriza elected; Syria refugees

2017: Grivalia - Fairfax Increased ownership to 52.7% for $100 million   

2018: Eurolife - Fairfax increased ownership to 50%; bought 10% from OMERS (whose ownership decreased to 30%)

Nov 2018 (closed May 2019): Eurobank - Fairfax increases stake to 32.4% via merger with Grivalia Properties.

• all stock transaction valued at US$866 million
• Fairfax owned 18% Eurobank and 54% of Grivalia; on close Fairfax owned 32.4% of new Eurobank
• Grivalia paid 40.5 million Euro special dividend
• Eurobank launched property management business run by Grivalia CEO

July 2021 Eurolife: increased ownership to 80% (purchased OMERS 30% stake for $142.6); Eurobank owns remaining 20%

————————-

Other Greek investments:

2013 Mytilineos - 5% for 30 million Euro ($41 million) - sold in 2018?

2014 Praktiker Hellas AE - bought 100% for 21 million Euro - still owns?

————————-

Why is Eurolife considered a gem?

2019AR: Through the crisis in Greece, we acquired a gem in Eurolife, a Greek property and casualty and life insurance company that operates predominantly in Greece but also in Romania. Alex Sarrigeorgiou has run Eurolife since 2004, following Eurobank’s decision to grow its insurance business, and we acquired it with OMERS as our partner in 2016. Since our initial 40% purchase of Eurolife in 2016 for Euro163 million, Eurolife has earned Euro347 million and paid dividends of Euro298 million and shareholders’ equity has increased from Euro400 million to Euro720 million at the end of 2019 after the payment of dividends. This phenomenal performance was predominantly because Eurolife had a significant holding of Greek government bonds whose rates went from 8% to 1% during that time period while its non-life business had an average combined ratio of 72%. We currently own 50% and equity account for Eurolife but plan to buy the rest of OMERS’ shares in 2020.

 

2020AR: Finally, in Greece, Eurolife has been an extraordinary investment for Fairfax. Writing both Life and Property/Casualty lines, the company in 2020 generated over $500 million of gross premiums written and produced net income of $130 million. Led by Alex Sarrigeorgiou, Eurolife has a track record second to none in the Greek market.

—————————

Here is a little more information on Grivalia which is now part of Eurobank. With property prices on a multi-year move higher Grivalia is an important profit engine for Eurobank.

2017AR: In 2017, we raised our equity interest in Grivalia to 52.7% by buying 10.3% for $100 million when Eurobank decided to divest its interest in Grivalia. It has been six years since we first met George Chryssikos, the outstanding CEO of Grivalia. Through Wade Burton, we took our first position in Grivalia in 2011 at Euro5.77 per share. George has navigated the Greek economic crisis superbly by buying only the highest quality commercial buildings and shopping centres at huge discounts to replacement cost and unlevered returns of 8% to 10%, not using excessive leverage and always focusing on the long term. We are very excited to be partners with George and his team as they build a fantastic real estate company. Like Bill McMorrow at Kennedy Wilson, George has a unique nose for value in real estate! And like all our Fairfax companies, he is building a fine company, focused on its customers, looking after its employees, making a return for shareholders and gratefully reinvesting in the communities where it operates. Business is a good thing!!

—————————

2019AR: Merger of Grivalia Properties REIC and Eurobank Ergasias S.A.

Early in 2019, Fokion Karavias (CEO of Eurobank) and George Chryssikos (CEO of Grivalia) came up with the idea of merging Grivalia into Eurobank, to strengthen the capital position of Eurobank, and accelerating its non-performing loan stock reduction through spinning out Euro7.5 billion of non-performing loans from the bank to its shareholders. We thought it was a brilliant idea but the process took time as it was subject to shareholder approval at Eurobank and Grivalia and regulatory approval from the ECB. As part of the same plan, Eurobank sold its non-performing loans management unit, FPS, to doValue S.p.A. (a public company listed in Italy) for Euro360 million. We expect all these transactions to close by March 31, 2020 and Eurobank to be well capitalized and on its way to earning 10% on its shareholders’ equity in 2020. Last year, Greece had an election in which the business friendly party of Kyriakos Mitsotakis won a majority in the parliament. As the new Prime Minister, Kyriakos has the opportunity to transform Greece by encouraging foreign investment into the country and by being business friendly. Ten-year Greek government bonds, which peaked at a yield of 37% in 2012, came down to 10% in 2016 and are now trading below 1%. Recently, Greece did a 15-year bond issue at 1.9% and a 30-year issue at 2.5%. The animal spirits are coming back to Greece and we think the Greek economy and Greek companies will thrive. Eurobank should benefit!! Our cost of 1.2 billion shares of Eurobank after the Grivalia transaction is now 94¢ versus a book value of approximately 135¢ per share post the transaction. At year end, Eurobank was selling at 68% of book value and 6.5x normalized earnings. We still believe it will be a good investment for us.

 

On May 17, 2019 Grivalia Properties REIC (‘‘Grivalia Properties’’) merged into Eurobank Ergasias S.A. (‘‘Eurobank’’), as a result of which shareholders of Grivalia Properties, including the company, received 15.8 newly issued Eurobank shares in exchange for each share of Grivalia Properties. Accordingly, the company deconsolidated Grivalia Properties from the Non-insurance companies reporting segment, recognized a non-cash gain of $171.3 and reduced non-controlling interests by $466.2. In connection with the merger, Grivalia Properties had paid a pre-merger capital dividend of Euro0.42 per share on February 5, 2019. The company owned approximately 53% of Grivalia Properties and 18% of Eurobank prior to the merger, and owned 32.4% of Eurobank upon completion of the merger. 

Edited October 14, 2021 by Viking

[Xerxes]

thank you.

 

The real hero of this Greek tragedy is the collapsing bond yield from 37% to 1%. Whoever locked-in those distressed bonds at +30% and rode them all the way to 1-3% must be laughing all the way to the Eurobank.

 

The aggregate sum of these Greek investments seem to be as big as (or bigger) than Fairfax India's market capitalization. In another time and place, this Hellenistic basket of investments would have been formally called "Fairfax Greece", if their deeper involvement was in fact pre-planned as oppose to a initial desire to repeat the Bank of Ireland trade, which then grinded them and morphed into a deeper involvement.

[KFS]

Insightful as always - thanks Viking.  

[TwoCitiesCapital]

3 hours ago, Xerxes said:

thank you.

 

The real hero of this Greek tragedy is the collapsing bond yield from 37% to 1%. Whoever locked-in those distressed bonds at +30% and rode them all the way to 1-3% must be laughing all the way to the Eurobank.

 

The aggregate sum of these Greek investments seem to be as big as (or bigger) than Fairfax India's market capitalization. In another time and place, this Hellenistic basket of investments would have been formally called "Fairfax Greece", if their deeper involvement was in fact pre-planned as oppose to a initial desire to repeat the Bank of Ireland trade, which then grinded them and morphed into a deeper involvement.

 

I imagine it was both. I think there was a bit of hubris in thinking they could immediately repeat the success of Bank of Ireland and also the recognition that Greece was having multi year depression. With an equity market down 90% from its highs and the situation unable to get much worse, it was an attractive environment to be picking long-term investments.

 

But the situation did get a little worse before it stabilized and got better and they were about 2 years early on the Eurobank in hindsight.  That's the risk with these things and why a basket approach might've been better than having all your exposure in only 3-4 companies where 1 was much larger than the others. 

 

All that being said, I imagine all of these Greek investments are well positioned to do very well going forward for the next decade. 

[glider3834]

18 hours ago, Viking said:

Greece has been an interesting geography for Fairfax for the last decade. And given the size of Fairfax’s two Greek investments (Eurobank and Eurolife) I thought it would be interesting to dust off a few old annual reports and learn a little more about how Fairfax got to where it is today.

 

Fairfax’s 10 year history in Greece has had a couple of triumphs (Grivalia, Eurolife), one catastrophe (initial investment in Eurobank), continuing adversity and perseverance, heroes, villains, a depression, a pestilence, loyalty, creativity (merger of Praktiker with Eurolife) and years of hard work - it all reads like one of the books of the Iliad by Homer.

 

So what does Fairfax have in Greece today?

• Eurolife: 80% ownership of a well managed and profitable insurance company; has about 10% marketshare in Greece.
• Eurobank: 32.4% ownership of a well managed bank that includes a very large and profitable property company (former Grivalia); its balance sheet fixed and profitability poised to jump as the Greek economy improves and real estate prices continue their multi-year move higher.
• Praktiker: 100% ownership - a Home Depot type business? Much smaller than the other two listed above.

————————

Eurobank

• Dec 31 2019 - Fair Value $1,164.4 million; Carrying Value (associates) $1,164.4; share of profit n/a
• Dec 31 2020 - Fair Value $799.9 million; Carrying Value (associates) $1,166.3; share of profit (-11.9)

Eurolife

• Dec 31 2019 50% ownership - Fair Value 403.1 million; share of profit $154.8
• Dec 31 2020 50% ownership - Fair Value 457.9 million; Carrying Value (associates) 336.2; share of profit 6.1

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Below is a short summary of the odyssey of how Fairfax got to where it is today with its 3 large Greek investments. 3 investments? Read on…

 

All good stories always start at the beginning. So…

 

Why did Fairfax invest in Greece? Answer: Ireland. What?

 

Fairfax had outstanding success investing in a distressed Irish bank (Bank of Ireland) in late 2011 after the Great Financial Crisis (I think they made +$800 million on this investment - tripled their money in a little over 5 years). And business partner, Kennedy Wilson, had great success investing in real estate in Dublin. So as the cash register was ringing on their Irish investment Fairfax saw similar opportunities in Greece.

 

What was the timeline of the Greek purchases?

2011: purchased 3.8% position in Grivalia (Europroperties)

• run by George Chryssiko who is one of the heroes of this story
• the Greek journey begins

Aug 2012: Grivalia (Eurobank Properties REIT) - Fairfax increased ownership from 3.8 to 18% for $50 million

2013: Grivalia (Eurobank Properties REIT) - Fairfax increased ownership to 41% for $20 million (plus?)

Dec 2014: Eurobank: Fairfax makes initial investment of 400 million Euro with group of investors (including Brookfield, Wilbur Ross, Fidelity, Mackenzie, Capital Research and Management)

• unemployment rate in Greece in 2014 is 28%!

Nov 2015: Eurobank recapitalization (forced by ECB, definitely one of the villains of our story Fairfax invests an additional 350 million Euro; ownership increases from 12.5% to 17%. 1 for 100 reverse share split; sold new shares for 1 euro.

Aug 2016: Eurolife: Fairfax purchases 80% ownership; 40% to Fairfax for $181 million and 40% to OMERS for $181 million.

• purchased from Eurobank. Fairfax was aided in its bid by its ownership in Eurobank (viewed as being good partner); important to Eurobank because the bank was retaining 20% ownership and much of Eurolife’s business was transacted through Eurobank distribution channels.
• referendum in Greece in 2015; Tsipras/Syriza elected; Syria refugees

2017: Grivalia - Fairfax Increased ownership to 52.7% for $100 million   

2018: Eurolife - Fairfax increased ownership to 50%; bought 10% from OMERS (whose ownership decreased to 30%)

Nov 2018 (closed May 2019): Eurobank - Fairfax increases stake to 32.4% via merger with Grivalia Properties.

• all stock transaction valued at US$866 million
• Fairfax owned 18% Eurobank and 54% of Grivalia; on close Fairfax owned 32.4% of new Eurobank
• Grivalia paid 40.5 million Euro special dividend
• Eurobank launched property management business run by Grivalia CEO

July 2021 Eurolife: increased ownership to 80% (purchased OMERS 30% stake for $142.6); Eurobank owns remaining 20%

————————-

Other Greek investments:

2013 Mytilineos - 5% for 30 million Euro ($41 million) - sold in 2018?

2014 Praktiker Hellas AE - bought 100% for 21 million Euro - still owns?

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Why is Eurolife considered a gem?

2019AR: Through the crisis in Greece, we acquired a gem in Eurolife, a Greek property and casualty and life insurance company that operates predominantly in Greece but also in Romania. Alex Sarrigeorgiou has run Eurolife since 2004, following Eurobank’s decision to grow its insurance business, and we acquired it with OMERS as our partner in 2016. Since our initial 40% purchase of Eurolife in 2016 for Euro163 million, Eurolife has earned Euro347 million and paid dividends of Euro298 million and shareholders’ equity has increased from Euro400 million to Euro720 million at the end of 2019 after the payment of dividends. This phenomenal performance was predominantly because Eurolife had a significant holding of Greek government bonds whose rates went from 8% to 1% during that time period while its non-life business had an average combined ratio of 72%. We currently own 50% and equity account for Eurolife but plan to buy the rest of OMERS’ shares in 2020.

 

2020AR: Finally, in Greece, Eurolife has been an extraordinary investment for Fairfax. Writing both Life and Property/Casualty lines, the company in 2020 generated over $500 million of gross premiums written and produced net income of $130 million. Led by Alex Sarrigeorgiou, Eurolife has a track record second to none in the Greek market.

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Here is a little more information on Grivalia which is now part of Eurobank. With property prices on a multi-year move higher Grivalia is an important profit engine for Eurobank.

2017AR: In 2017, we raised our equity interest in Grivalia to 52.7% by buying 10.3% for $100 million when Eurobank decided to divest its interest in Grivalia. It has been six years since we first met George Chryssikos, the outstanding CEO of Grivalia. Through Wade Burton, we took our first position in Grivalia in 2011 at Euro5.77 per share. George has navigated the Greek economic crisis superbly by buying only the highest quality commercial buildings and shopping centres at huge discounts to replacement cost and unlevered returns of 8% to 10%, not using excessive leverage and always focusing on the long term. We are very excited to be partners with George and his team as they build a fantastic real estate company. Like Bill McMorrow at Kennedy Wilson, George has a unique nose for value in real estate! And like all our Fairfax companies, he is building a fine company, focused on its customers, looking after its employees, making a return for shareholders and gratefully reinvesting in the communities where it operates. Business is a good thing!!

—————————

2019AR: Merger of Grivalia Properties REIC and Eurobank Ergasias S.A.

Early in 2019, Fokion Karavias (CEO of Eurobank) and George Chryssikos (CEO of Grivalia) came up with the idea of merging Grivalia into Eurobank, to strengthen the capital position of Eurobank, and accelerating its non-performing loan stock reduction through spinning out Euro7.5 billion of non-performing loans from the bank to its shareholders. We thought it was a brilliant idea but the process took time as it was subject to shareholder approval at Eurobank and Grivalia and regulatory approval from the ECB. As part of the same plan, Eurobank sold its non-performing loans management unit, FPS, to doValue S.p.A. (a public company listed in Italy) for Euro360 million. We expect all these transactions to close by March 31, 2020 and Eurobank to be well capitalized and on its way to earning 10% on its shareholders’ equity in 2020. Last year, Greece had an election in which the business friendly party of Kyriakos Mitsotakis won a majority in the parliament. As the new Prime Minister, Kyriakos has the opportunity to transform Greece by encouraging foreign investment into the country and by being business friendly. Ten-year Greek government bonds, which peaked at a yield of 37% in 2012, came down to 10% in 2016 and are now trading below 1%. Recently, Greece did a 15-year bond issue at 1.9% and a 30-year issue at 2.5%. The animal spirits are coming back to Greece and we think the Greek economy and Greek companies will thrive. Eurobank should benefit!! Our cost of 1.2 billion shares of Eurobank after the Grivalia transaction is now 94¢ versus a book value of approximately 135¢ per share post the transaction. At year end, Eurobank was selling at 68% of book value and 6.5x normalized earnings. We still believe it will be a good investment for us.

 

On May 17, 2019 Grivalia Properties REIC (‘‘Grivalia Properties’’) merged into Eurobank Ergasias S.A. (‘‘Eurobank’’), as a result of which shareholders of Grivalia Properties, including the company, received 15.8 newly issued Eurobank shares in exchange for each share of Grivalia Properties. Accordingly, the company deconsolidated Grivalia Properties from the Non-insurance companies reporting segment, recognized a non-cash gain of $171.3 and reduced non-controlling interests by $466.2. In connection with the merger, Grivalia Properties had paid a pre-merger capital dividend of Euro0.42 per share on February 5, 2019. The company owned approximately 53% of Grivalia Properties and 18% of Eurobank prior to the merger, and owned 32.4% of Eurobank upon completion of the merger. 

thanks Viking!