Fairfax stock positions

[Parsad]

On 4/15/2022 at 11:00 AM, Viking said:

Fairfax owns an extensive number of equity positions. This leads to the question: is it better to own Fairfax or one or more of their undervalued equity holdings (or some combination of holdings)? When Fairfax was trading crazy cheap (pretty much all of the past 2 years) my strategy was to keep things simple and usually (not always) to go with an overweight position in Fairfax. 
 

We have some new news… Fairfax is now trading at a multi-year high (US$555) and it looks poised to break out to new all time highs. This is especially impressive performance given the decline we have seen in most market averages to start the year. My read today is Fairfax is still cheap… but it no longer looks crazy cheap. Especially when compared to some of its equity holdings. 
 

What of Fairfax’s equity holdings look crazy cheap today? Three names jump out to me:

1.) Fairfax India at US$12.50

- BV is close to $20. Catalyst? Another Dutch auction.  Rebound of BIAL asset. 

2.) Recipe at C$14.30

- market cap is C$840 million; net debt is $350 million. Stock was trading at over $18 pre pandemic (and +$25 from 2017-2019). Dominant family causal player in Canada with strong brands (Keg, Swiss Chalet, Harveys, St Hubert, Kelseys, Montanas etc). Q1 results will be weak (Omicron hit to Jan sales from lock downs in Ontario and Quebec). Q2-Q4 sales should ramp higher. Stock will likely pop significantly on ANY good news.

3.) Atlas at US$13.40

- see Atlas thread for thesis

 

On Friday i sold a little more Fairfax and used the proceeds to build positions in Fairfax India and Recipe. Are there other equity positions of Fairfax that board members view as crazy cheap today?

 

Would you consider any permanent impairment in some of Recipe's assets...similar to most sit-down restaurant chains around the world after the pandemic?  Personally, I'm more comfortable building positions in Fairfax India and Atlas at the right prices.

 

Not that restaurants will disappear, but we've clearly seen during waves of the pandemic that the most successful restaurants have been those that can handle both in-house sales and drive-thru sales.  Home delivery helps, but revenues still fall off dramatically unless you have a drive-thru.  And it's quite hard to add an efficient drive-thru to say an Olive Garden or Cheesecake Factory!  Cheers!

[glider3834]

4 hours ago, Viking said:

With Fairfax India shares trading so much below BV (0.63 or so) buying back shares is exceptionally shareholder friendly (and accretive). And with the IIFL Wealth sale Fairfax India has the cash. This also increases Fairfax’s ownership - so a big win there. This also takes out weak hands (shareholders looking to exit). 
 

The Fairfax India dutch auction in 2021 popped the price to $14.90. That is much higher than where the shares are trading today ($12.60) and would provide shareholders with a pretty nice return if history repeated itself (especially those of us in Canada who can tender shares in a tax free account).
 

Did the increase in the share price to $14.90 stick? No. I have no idea why Fairfax India continues to trade at such a low level. However, IT IS a gift for Fairfax India’s management - so i hope they continue to buy back lots of stock. And i expect a buyback - both NCIB or dutch auction - will likely get the stock price moving higher. I would expect this topic to come up at the Fairfax India AGM.

—————

It would be interesting to know Fairfax’s thoughts on Fairfax India. Fairfax’s ownership in Fairfax India has been methodically increasing in a material way since Fairfax India was launched. Fairfax now owns 41.8% of Fairfax India (recently buying another 5% chunk for $12).
 

Also, is Fairfax limited to how big its ownership position in Fairfax India can go? Can it just keep increasing its ownership position 3-5% each year moving forward?
 

I also wonder how the accounting rules will influence what Fairfax does moving forward - is there an opportunity to boost Fairfax’s BV by pushing ownership stake in Fairfax India over a certain threshold. 

I think they would continue to consolidate if they went over 50% ownership

Edited April 19, 2022 by glider3834

[glider3834]

3 hours ago, Parsad said:

 

Would you consider any permanent impairment in some of Recipe's assets...similar to most sit-down restaurant chains around the world after the pandemic?  Personally, I'm more comfortable building positions in Fairfax India and Atlas at the right prices.

 

Not that restaurants will disappear, but we've clearly seen during waves of the pandemic that the most successful restaurants have been those that can handle both in-house sales and drive-thru sales.  Home delivery helps, but revenues still fall off dramatically unless you have a drive-thru.  And it's quite hard to add an efficient drive-thru to say an Olive Garden or Cheesecake Factory!  Cheers!

would be curious to compare Recipe's multiples/valuation against peers 

[TwoCitiesCapital]

16 hours ago, petec said:

Why would a second Dutch auction at FIH be a catalyst when the first one wasn’t?

 

If the discount is due to (il)liquidity and FFH’s rising stake, wouldn’t a Dutch auction make things worse?

 

Not sure if those are the reasons for the discount since those were true back when it traded at a premium too. 

 

The discount is solely based on sentiment. Can't tell you why it's negative after performance like they've put up, but it just is. 

 

I do agree the Dutch auction wouldn't be a catalyst for a higher price now, but probably one of the best uses of funds since the improvement to book value is attractive and guaranteed. 

[Xerxes]

The Dutch auction and periodic won’t close the discount. That is not the intent. 
 

What will compress the discount is the airport going back to its full pre-pandemic capacity and showing in the numbers.  

 

The buybacks is just to get ready for that inflection point.
 

After all the discount is based on book value, which itself is based on a calculated intrinsic value. The real economic picture for the airport need to “kick in” …

[Viking]

13 hours ago, Parsad said:

 

Would you consider any permanent impairment in some of Recipe's assets...similar to most sit-down restaurant chains around the world after the pandemic?  Personally, I'm more comfortable building positions in Fairfax India and Atlas at the right prices.

 

Not that restaurants will disappear, but we've clearly seen during waves of the pandemic that the most successful restaurants have been those that can handle both in-house sales and drive-thru sales.  Home delivery helps, but revenues still fall off dramatically unless you have a drive-thru.  And it's quite hard to add an efficient drive-thru to say an Olive Garden or Cheesecake Factory!  Cheers!

@Parsad well i have been reading pretty extensively on Recipe the past couple of days (since my initial post) and i decided today to exit my position (at about break even).

 

i continue to think Recipe has some decent brands. They are positioned exceptionally well in Canada to benefit from the coming shift in consumer spending from goods to services. Covid has hit independent restaurants (who have fewer resources to weather and transform) far harder than the chain restaurants like Recipe. Lots have closed up shop. Recipe SHOULD be able to generate significant free cash flow from their business. And trading at $14.30 the stock is cheap. 
——————

My primary concern with Recipe is management. The near term outlook is also murky: Q1 results will be poor given the lockdowns in Jan/Feb and cost pressures are intensifying (food and labour). Coming out of the pandemic Recipe should do well… full service dining should rock (most of Recipes locations have patios). But i am not so sure Recipe WILL do well. Recipe is looking after employees. And franchisees. Lots of industry awards. Fairfax and the Phelan family will get looked after (they own 2/3 of the company). But i wonder where minority shareholders (who own 1/3) fit in… Shareholder return (generating free cash flow and using it wisely) is rarely mentioned as a priority by management. 

—————

Most restaurant stocks in Canada (Boston Pizza, A&W) are higher than they were trading pre covid. The foodservice business is bouncing back. Not Recipe. And the share price is down 15% from where it was trading pre-covid.

—————

Recipe spent $200 million on the Keg. And +$500 million on St-Hubert. And close to $100 million on Original Joes. So +$800 million was spent in recent years on just 3 acquisitions. Recipe has a total market cap today of $830 million. Nuts. There WAS value there. Either it has been destroyed or it is hidden. What Recipe has DEMONSTRATED over many years is they are not good buyers (pay too much). And average at best operators. And what did management telegraph on the Q4 conference call? They might expand to the US (buy a chain there). If you are a sub par operator in Canada you will get eaten alive if you try and expand into the US - especially if you pay a premium for an average business (which they will likely need to do). 

—————

Most successful restaurant operations in North America are highly focussed - one maybe 2 or 3 banners. Recipe? 8 large banners and a bunch of smaller ones. What are the synergies? There appears to be none (or they are small). Which banners/regions get the focus? The conglomerate model usually does not work in restaurants. One would think Recipe would have figured that out by now but i don’t think they have (given their interest to growth via acquisition).
—————

Bottom line, i do believe the stock is cheap. There is likely money to be made. Just not the right fit for me. 

Edited April 19, 2022 by Viking

[petec]

2 hours ago, TwoCitiesCapital said:

Not sure if those are the reasons for the discount since those were true back when it traded at a premium too. 

Yes, but IIRC FIH wasn’t buying back stock then, or at least not in size. Buybacks, even at a discount, become a *problem* for minority shareholders if they increase the risk that a controller can take the company private at a big discount. I’ve learnt this the hard way in the past and that is what might be starting to happen here. 

[petec]

1 hour ago, Viking said:

Fairfax and the Phelan family will get looked after (they own 2/3 of the company). But i wonder where minority shareholders (who own 1/3) fit in…

How do you see one set of shareholders benefiting and the others not? Is there a way dividends can be directed for example?

 

 

[Xerxes]

Viking

you probably know better than me, but I ll say it anyways. You better off staying with what you know (FFH) and riding it out … than diversifying into its lesser branches (Recipe, Resolute etc). There is no need to make a move and “locking in” gains. Only to go down the quality ladder. 
 

 

[Viking]

4 hours ago, petec said:

Yes, but IIRC FIH wasn’t buying back stock then, or at least not in size. Buybacks, even at a discount, become a *problem* for minority shareholders if they increase the risk that a controller can take the company private at a big discount. I’ve learnt this the hard way in the past and that is what might be starting to happen here. 

Fairfax and Fairfax India is reminding me of Brookfield and Brookfield Property Partners. If i was buying Fairfax India shares < $13 i would not be concerned (which is my case). If my cost basis was $16 or over then i would be at least a little concerned about a Fairfax take-out at a big discount to BV. Regardless, i do not see a buyout happening any time soon (next couple of years).

[Parsad]

5 hours ago, Viking said:

@Parsad well i have been reading pretty extensively on Recipe the past couple of days (since my initial post) and i decided today to exit my position (at about break even).

 

i continue to think Recipe has some decent brands. They are positioned exceptionally well in Canada to benefit from the coming shift in consumer spending from goods to services. Covid has hit independent restaurants (who have fewer resources to weather and transform) far harder than the chain restaurants like Recipe. Lots have closed up shop. Recipe SHOULD be able to generate significant free cash flow from their business. And trading at $14.30 the stock is cheap. 
——————

My primary concern with Recipe is management. The near term outlook is also murky: Q1 results will be poor given the lockdowns in Jan/Feb and cost pressures are intensifying (food and labour). Coming out of the pandemic Recipe should do well… full service dining should rock (most of Recipes locations have patios). But i am not so sure Recipe WILL do well. Recipe is looking after employees. And franchisees. Lots of industry awards. Fairfax and the Phelan family will get looked after (they own 2/3 of the company). But i wonder where minority shareholders (who own 1/3) fit in… Shareholder return (generating free cash flow and using it wisely) is rarely mentioned as a priority by management. 

—————

Most restaurant stocks in Canada (Boston Pizza, A&W) are higher than they were trading pre covid. The foodservice business is bouncing back. Not Recipe. And the share price is down 15% from where it was trading pre-covid.

—————

Recipe spent $200 million on the Keg. And +$500 million on St-Hubert. And close to $100 million on Original Joes. So +$800 million was spent in recent years on just 3 acquisitions. Recipe has a total market cap today of $830 million. Nuts. There WAS value there. Either it has been destroyed or it is hidden. What Recipe has DEMONSTRATED over many years is they are not good buyers (pay too much). And average at best operators. And what did management telegraph on the Q4 conference call? They might expand to the US (buy a chain there). If you are a sub par operator in Canada you will get eaten alive if you try and expand into the US - especially if you pay a premium for an average business (which they will likely need to do). 

—————

Most successful restaurant operations in North America are highly focussed - one maybe 2 or 3 banners. Recipe? 8 large banners and a bunch of smaller ones. What are the synergies? There appears to be none (or they are small). Which banners/regions get the focus? The conglomerate model usually does not work in restaurants. One would think Recipe would have figured that out by now but i don’t think they have (given their interest to growth via acquisition).
—————

Bottom line, i do believe the stock is cheap. There is likely money to be made. Just not the right fit for me. 

 

100% agree with this!  I think Recipe is a mess!  Might be cheap on a cash flow basis, but the assets are all over the place and only a handful will grow successfully organically...The Keg, New York Fries, St. Hubert, Original Joes.  They would have been better off buying a handful of great cash-flowing U.S. restaurant brands during the pandemic (Denny's, Rocky Mountain Chocolate Factory to name a couple) if they were going to focus on sit-down restaurants and various ad-hoc brands with 3-5 locations.  A lot of these smaller brands are not franchisable.  Not a right fit for me or Fairfax!  Cheers!

[Viking]

5 hours ago, petec said:

How do you see one set of shareholders benefiting and the others not? Is there a way dividends can be directed for example?

I think Fairfax and the Phelon family are empire building with Recipe. Step 1 was building Recipe out to become a ‘leader’ in Canada. Done. Step 2 is looking like expansion into the US. It looks like size is what matters most to them. Of course, Recipe WANTS to make money. But my read (based on what they have actually done for the past 8 years) is their top priority is growth; and as they execute their growth strategy to be as profitable as possible. I want to invest in companies that put growing profits (and shareholder returns) before empire building/growth.
 

The Phelon family has been the controlling shareholder since 1880 (well they are #2 today). My read is minority shareholders are there simply to provide a big part of the funding for the next acquisition. 

—————

In 2015 Cara went public for a second time (it was re-named Recipe in 2018) and the IPO was done at $23 ($200 million was raised). A second share offering was done in 2016 to help fund the St Hubert acquisition at $29.25 ($230 million was raised). A third share offering was done in 2018 to help fund the Keg acquisition at $24.93/share ($95 million was raised). 
 

Shares are trading today at $14.30. Not a great record of building shareholder value. Cara was also a publicly traded company a couple of years before its merger with Fairfax - and if memory serves me correctly it was an even bigger mess in its previous incarnation as a publicly traded company. I wonder if that was not one of the reasons the name was changed to Recipe (to get a fresh start with investors).
—————

Paul Rivette is Chiarman of the Recipe board today. From the press release from the 2013 merger of Cara with Prime/Fairfax: Mr. Paul Rivett, President of Fairfax added, "Both Cara and Prime are Canadian-based success stories founded on a passion for good food, strong value and exceptional service. Prime delivers a team of skilled operators with a long-term track record as well as additional iconic brands that will fit seamlessly within the Cara family. We believe this is an excellent opportunity to combine the best of both organizations and their over 50,000 employees behind a Canadian leader with combined systems sales of almost $1.7 billion that can eventually be a global made-in-Canada success story."

Edited April 19, 2022 by Viking

[Viking]

1 hour ago, Xerxes said:

Viking

you probably know better than me, but I ll say it anyways. You better off staying with what you know (FFH) and riding it out … than diversifying into its lesser branches (Recipe, Resolute etc). There is no need to make a move and “locking in” gains. Only to go down the quality ladder. 

Xerxes, I don’t mind being pretty concentrated in one position if the risk reward gets nuts (like Fairfax was at many times the past 18 months). As Fairfax’s share price continues to increase i am reducing my weighting (i am a little under 15% today). And ideally re-deploy into other opportunities that look super cheap (i am in no hurry right now). My rule of thumb is to start with situations i already understand reasonably well. But i find i need to get a decent sized weighting in a new position for my brain to really start to focus. And sometimes, like with Recipe, i change my mind as i learn more. 
————-

Researching Recipe also satisfies an itch for me. I worked for Kraft Foods and Dairyland/Saputo on the restaurant side of the business - first in sales and then management (Vancouver and Toronto). So during my 15 year career at some point i actually called on lots of the largest restaurant chains in Canada (and then my sales people did). Including Cara. What i learned long ago is it is wickedly difficult to make money in the restaurant business in Canada. But i try and remain open minded…

Edited April 19, 2022 by Viking

[petec]

6 hours ago, Viking said:

Fairfax and Fairfax India is reminding me of Brookfield and Brookfield Property Partners. If i was buying Fairfax India shares < $13 i would not be concerned (which is my case). If my cost basis was $16 or over then i would be at least a little concerned about a Fairfax take-out at a big discount to BV. Regardless, i do not see a buyout happening any time soon (next couple of years).

No, it won’t happen soon. I’m just speculating that the buyback might have become part of the reason for the discount, and that might persist. These things are weirdly self-perpetuating. 

[petec]

Doesn’t Fairfax control Recipe? If so why does it tolerate growth (instead of returns) oriented management?

[Xerxes]

4 minutes ago, petec said:

Doesn’t Fairfax control Recipe? If so why does it tolerate growth (instead of returns) oriented management?

 Fairfax = Fair and Friendly. 

[Viking]

3 hours ago, petec said:

Doesn’t Fairfax control Recipe? If so why does it tolerate growth (instead of returns) oriented management?

Recipe is a legacy asset for Fairfax. It all began in 2011 when Fairfax purchased Prime Restaurants for $71 million (Prime had actually entered into an agreement with Cara first… and then Fairfax swooped in and paid a bunch more to outbid Cara). This version of Fairfax is what i call ‘old Fairfax’ (and i am pretty sure you do not agree with my characterization… but there are just too many good examples… like Recipe that fit my thesis). 
 

This version of Fairfax DID NOT put a premium on management. And they thought they (Fairfax - Hamblin Watsa) were a private equity turn around shop. Like, how hard can it be to run a couple of restaurant chains? After all, Buffett has Dairy Queen.

 

How do i know they did not put a premium on management? When Fairfax/Prime merged with Cara in 2013 they brought in Bill Gregson as CEO. His qualifications? He ran the Brick (furniture retailer) and previous to that was COO at Forzani (Sporting goods retailer). Zero foodserive experience. This also tells you how terribly run Cara and Prime were at the time (they obviously had zero bench strength - between the two large organizations no one able to run the combined merged company). I think they also gave Gregson 2.4 million shares at the time (they were just exercised… legacy CEO stock options… Recipe share count just jumped 2.4 million). 
 

And what did Gregson do? Well, the rest is history… get big… and fast. St. Hubert (Quebec), Original Joes (West), Keg. My guess is Gregson got his marching orders from Paul Rivette who was on the board of Cara/Recipe (he still is there). Gotta create that ‘Canadian champion’ who can compete with the big boys in the US… (This corporate imperative sounds freakishly similar to Blackberry… another ‘Canadian champion’ - this one promoted by Prem.)
 

Now what is very interesting to me is Fairfax has fixed over the past 3 or 4 years many of the ‘old Fairfax’ problem children (APR, EXCO, Fairfax Africa etc). But not all of them. Recipe is still a work in progress. Blackberry is another. And AGT might be one more (not enough info to know). 
—————

There is another interesting wrinkle in Fairfax’s dreams of becoming a king pin in the restaurant business in Canada: celebrity chef Mark McEwan - 2015

 

- “We are excited to be Mark's partner in The McEwan Group and Mark has also committed to providing us with expertise that will be beneficial to all of our restaurant investments in the future," said Paul Rivett, President of Fairfax.

- https://www.newswire.ca/news-releases/mcewan-group-partners-with-fairfax-financial-524444161.html

—————

Sept 2021 - Toronto Restaurant Chain McEwan Enterprises Files For Bankruptcy (Fairfax was a 55% owner)
 

McEwan, which is led by celebrity chef Mark McEwan, owns six high-profile Toronto restaurants, including Bymark, Fabbrica and Diwan as well as grocer McEwan Fine Foods and a catering business. 

The company filed for Companies' Creditors Arrangement Act (CCAA) on September 28 with about $11 million in outstanding liabilities and a cash balance of approximately $1 million. 
 

- https://www.baystreet.ca/economiccommentary/3362/Toronto-Restaurant-Chain-McEwan-Enterprises-Files-For-Bankruptcy

 

Edited April 20, 2022 by Viking

[Parsad]

3 hours ago, Viking said:

Recipe is a legacy asset for Fairfax. It all began in 2011 when Fairfax purchased Prime Restaurants for $71 million (Prime had actually entered into an agreement with Cara first… and then Fairfax swooped in and paid a bunch more to outbid Cara). This version of Fairfax is what i call ‘old Fairfax’ (and i am pretty sure you do not agree with my characterization… but there are just too many good examples… like Recipe that fit my thesis). 
 

This version of Fairfax DID NOT put a premium on management. And they thought they (Fairfax - Hamblin Watsa) were a private equity turn around shop. Like, how hard can it be to run a couple of restaurant chains? After all, Buffett has Dairy Queen.

 

How do i know they did not put a premium on management? When Fairfax/Prime merged with Cara in 2013 they brought in Bill Gregson as CEO. His qualifications? He ran the Brick (furniture retailer) and previous to that was COO at Forzani (Sporting goods retailer). Zero foodserive experience. This also tells you how terribly run Cara and Prime were at the time (they obviously had zero bench strength - between the two large organizations no one able to run the combined merged company). I think they also gave Gregson 2.4 million shares at the time (they were just exercised… legacy CEO stock options… Recipe share count just jumped 2.4 million). 
 

And what did Gregson do? Well, the rest is history… get big… and fast. St. Hubert (Quebec), Original Joes (West), Keg. My guess is Gregson got his marching orders from Paul Rivette who was on the board of Cara/Recipe (he still is there). Gotta create that ‘Canadian champion’ who can compete with the big boys in the US… (This corporate imperative sounds freakishly similar to Blackberry… another ‘Canadian champion’ - this one promoted by Prem.)
 

Now what is very interesting to me is Fairfax has fixed over the past 3 or 4 years many of the ‘old Fairfax’ problem children (APR, EXCO, Fairfax Africa etc). But not all of them. Recipe is still a work in progress. Blackberry is another. And AGT might be one more (not enough info to know). 
—————

There is another interesting wrinkle in Fairfax’s dreams of becoming a king pin in the restaurant business in Canada: celebrity chef Mark McEwan - 2015

 

- “We are excited to be Mark's partner in The McEwan Group and Mark has also committed to providing us with expertise that will be beneficial to all of our restaurant investments in the future," said Paul Rivett, President of Fairfax.

- https://www.newswire.ca/news-releases/mcewan-group-partners-with-fairfax-financial-524444161.html

—————

Sept 2021 - Toronto Restaurant Chain McEwan Enterprises Files For Bankruptcy (Fairfax was a 55% owner)
 

McEwan, which is led by celebrity chef Mark McEwan, owns six high-profile Toronto restaurants, including Bymark, Fabbrica and Diwan as well as grocer McEwan Fine Foods and a catering business. 

The company filed for Companies' Creditors Arrangement Act (CCAA) on September 28 with about $11 million in outstanding liabilities and a cash balance of approximately $1 million. 
 

- https://www.baystreet.ca/economiccommentary/3362/Toronto-Restaurant-Chain-McEwan-Enterprises-Files-For-Bankruptcy

 

 

There are very few celebrity chefs who can actually successfully run a food empire.  I don't think McEwan is one of them. 

 

Different types of restaurants also bring different problems.  Fast food franchise restaurants are run very differently than fine-dining sit-down restaurants.  Mid-priced sit-down chains that are national are run very differently than fast-food or fine-dining.  Catering businesses have their own set of problems.  Food trucks have their issues.

 

Some regions also cannot support fine-dining restaurants in large scale...for example Vancouver.  Vancouver has a ton of rich people, but not a lot of them want to spend money on the high-end side believe it or not.  Sure we have our share of people who enjoy luxury items, but high-end fine dining finds it hard to make good profits in Vancouver other than a few well-known local restaurants.  Torontonians like to spend money on famous chefs and their restaurants...New Yorkers do too...and Los Angeles, Chicago, Vegas...but Vancouver really doesn't.

 

It's why the Keg or Cactus Club do extremely well in Vancouver, but restaurants by Jean-George Vongerichten or Stefan Hartmann failed.  Ask Rob Feenie who ran one of the best restaurants in Canada for over a decade...Lumiere...who sold out and decided to run the menu for Cactus Club!  Part of it is the people, part is the inability to find really great staff for high-end dining, and then a lot is simply the economics of the business...food costs, staffing costs, rents, etc.  New Yorkers are ok paying $100 for a steak...Vancouverites, not so much!  

 

Cheers!

[petec]

4 hours ago, Viking said:

Recipe is a legacy asset for Fairfax. It all began in 2011 when Fairfax purchased Prime Restaurants for $71 million (Prime had actually entered into an agreement with Cara first… and then Fairfax swooped in and paid a bunch more to outbid Cara). This version of Fairfax is what i call ‘old Fairfax’ (and i am pretty sure you do not agree with my characterization… but there are just too many good examples… like Recipe that fit my thesis). 
 

This version of Fairfax DID NOT put a premium on management. And they thought they (Fairfax - Hamblin Watsa) were a private equity turn around shop. Like, how hard can it be to run a couple of restaurant chains? After all, Buffett has Dairy Queen.

 

How do i know they did not put a premium on management? When Fairfax/Prime merged with Cara in 2013 they brought in Bill Gregson as CEO. His qualifications? He ran the Brick (furniture retailer) and previous to that was COO at Forzani (Sporting goods retailer). Zero foodserive experience. This also tells you how terribly run Cara and Prime were at the time (they obviously had zero bench strength - between the two large organizations no one able to run the combined merged company). I think they also gave Gregson 2.4 million shares at the time (they were just exercised… legacy CEO stock options… Recipe share count just jumped 2.4 million). 
 

And what did Gregson do? Well, the rest is history… get big… and fast. St. Hubert (Quebec), Original Joes (West), Keg. My guess is Gregson got his marching orders from Paul Rivette who was on the board of Cara/Recipe (he still is there). Gotta create that ‘Canadian champion’ who can compete with the big boys in the US… (This corporate imperative sounds freakishly similar to Blackberry… another ‘Canadian champion’ - this one promoted by Prem.)
 

Now what is very interesting to me is Fairfax has fixed over the past 3 or 4 years many of the ‘old Fairfax’ problem children (APR, EXCO, Fairfax Africa etc). But not all of them. Recipe is still a work in progress. Blackberry is another. And AGT might be one more (not enough info to know). 
—————

There is another interesting wrinkle in Fairfax’s dreams of becoming a king pin in the restaurant business in Canada: celebrity chef Mark McEwan - 2015

 

- “We are excited to be Mark's partner in The McEwan Group and Mark has also committed to providing us with expertise that will be beneficial to all of our restaurant investments in the future," said Paul Rivett, President of Fairfax.

- https://www.newswire.ca/news-releases/mcewan-group-partners-with-fairfax-financial-524444161.html

—————

Sept 2021 - Toronto Restaurant Chain McEwan Enterprises Files For Bankruptcy (Fairfax was a 55% owner)
 

McEwan, which is led by celebrity chef Mark McEwan, owns six high-profile Toronto restaurants, including Bymark, Fabbrica and Diwan as well as grocer McEwan Fine Foods and a catering business. 

The company filed for Companies' Creditors Arrangement Act (CCAA) on September 28 with about $11 million in outstanding liabilities and a cash balance of approximately $1 million. 
 

- https://www.baystreet.ca/economiccommentary/3362/Toronto-Restaurant-Chain-McEwan-Enterprises-Files-For-Bankruptcy

 

 

 

Yes, I am well aware of the history. What I don't understand is why Fairfax don't muscle in and demand change to management, strategy, and/or capital allocation. Unless of course they disagree with your critique. 

 

Recipe is one of those businesses where I'd like to see buybacks stop and dividends start. Buybacks only make any sense if you have real belief in the terminal value of the business. Otherwise you want cash OUT. And if they can get free cash flow back to anything like pre-covid levels that would be quite a dividend.

 

[Viking]

10 hours ago, petec said:

 

 

Yes, I am well aware of the history. What I don't understand is why Fairfax don't muscle in and demand change to management, strategy, and/or capital allocation. Unless of course they disagree with your critique. 

 

Recipe is one of those businesses where I'd like to see buybacks stop and dividends start. Buybacks only make any sense if you have real belief in the terminal value of the business. Otherwise you want cash OUT. And if they can get free cash flow back to anything like pre-covid levels that would be quite a dividend.

@petec the management team at Recipe WAS and IS Fairfax’s management team. Since at least 2013. Bill Gregson was Fairfax’s guy. My assumption is Hennessey is as well. Paul Rivette is Chairman ans has been forever. (Paul said their goal with Recipe is to build a ‘Canadian champion’.) EVERYTHING THAT HAS HAPPENED AT RECIPE SINCE 2015 HAS BEEN AT THE DIRECTION OF FAIRFAX. And what is happening? Empire building… it is obvious looking back at the assets they bought, what was paid and how it was funded. Shareholder returns have been terrible and the prospects looking forward are not great. And what did they telegraph on the Q4 call? They are actively looking to get bigger. With an eye on the US. 
 

How does anything Recipe has done the past 8 years validate doing more of the same moving forward? That is the definition of insanity.
 

Having said all that, i do think there is value with Recipe trading today < $15.

 

in terms of dividend, in Ontario (perhaps other provinces as well) i think there are rules around covid subsidies received from government and companies paying dividends. So dividends might be a 2023 decision (kind of a no brainer they go $0.11/share). 

 

[glider3834]

Going all in on luxury hotels/tourism in Greece 

Acquisition of sole control by Fairfax Financial Holdings Limited over Grivalia Hospitality SA, which is currently jointly controlled by Fairfax and M&G Investment Management Limited. 

 

https://epant.gr/enimerosi/anakoinosi-sygkentroseon/item/2187-apoktisi-apokleistikoy-elegxou-apo-tin-fairfax-financial-holdings-limited-epi-tis-grivalia-hospitality-sa-i-opoia-epi-tou-parontos-telei-ypo-ton-koino-elegxo-tis-fairfax-kai-tis-m-g-investment-management-limited.html

[glider3834]

3 minutes ago, glider3834 said:

Going all in on luxury hotels/tourism in Greece 

Acquisition of sole control by Fairfax Financial Holdings Limited over Grivalia Hospitality SA, which is currently jointly controlled by Fairfax and M&G Investment Management Limited. 

 

https://epant.gr/enimerosi/anakoinosi-sygkentroseon/item/2187-apoktisi-apokleistikoy-elegxou-apo-tin-fairfax-financial-holdings-limited-epi-tis-grivalia-hospitality-sa-i-opoia-epi-tou-parontos-telei-ypo-ton-koino-elegxo-tis-fairfax-kai-tis-m-g-investment-management-limited.html

'In fact, Fairfax acquires the percentage of the British fund M&G, which according to the latest data reaches 51.1%. What has not been made known is whether the company's shares will be transferred directly to the Canadian group, or whether they will be distributed to its Greek holdings. Today the remaining 48.3% of Grivalia Hospitality is "shared" with Eurolife (26.7%), Eurobank (19.9%) and Grivalia Management (1.7%).  '

https://www.moneyreview.gr/business-and-finance/business/74705/nea-epochi-gia-ti-grivalia-hospitality-perna-ston-pliri-elegcho-tis-fairfax/

 

[glider3834]

On 4/21/2022 at 9:49 PM, glider3834 said:

Going all in on luxury hotels/tourism in Greece 

Acquisition of sole control by Fairfax Financial Holdings Limited over Grivalia Hospitality SA, which is currently jointly controlled by Fairfax and M&G Investment Management Limited. 

 

https://epant.gr/enimerosi/anakoinosi-sygkentroseon/item/2187-apoktisi-apokleistikoy-elegxou-apo-tin-fairfax-financial-holdings-limited-epi-tis-grivalia-hospitality-sa-i-opoia-epi-tou-parontos-telei-ypo-ton-koino-elegxo-tis-fairfax-kai-tis-m-g-investment-management-limited.html

https://www.theguardian.com/world/2022/apr/24/all-omens-look-positive-greece-grateful-tourists-flock-back

‘All omens look positive’: Greece is grateful as the tourists flock back

Not since the pre-Covid season, when 33 million holidaymakers visited, has business been as good

[glider3834]

https://www.reuters.com/markets/stocks/eurobank-grows-first-quarter-profit-lower-bad-debt-provisions-2022-05-25

Eurobank core income (net interest plus fees & commissions)exceeded estimates - they are sticking with their goal of 10% ROE this year & dividend distribution from 2022 profit.

 

https://www.eurobankholdings.gr/-/media/holding/omilos/grafeio-tupou/etairikes-anakoinoseis/2022/1q-2022/1q2022-results-pr-en.pdf

Edited May 26, 2022 by glider3834

[Viking]

Here is a quick update of Fairfax's equity holdings. Please note, I have not updated the spreadsheet to capture any changes to positions that have happened the past couple of months. Regardless, my numbers should be directionally accurate. Since March 31 the equity portfolio has likely declined a little over $800 million = 5.7%. About $500 million of the total is mark to market = $20/share (pre-tax).

 

S&P500 performance since March 31?   - 9.3%

Nasdaq performance since March 31?   - 15.5%

 

Fairfax's results are not unexpected given the equity market sell off in April and May morphed beyond Nasdaq to include all stocks. perhaps the biggest takeaway is Fairfax's equity portfolio is continuing to outperforming the broad averages which is nice to see.

 

What does this mean for Fairfax and Q2 results?

1.) underwriting: tailwind (hard market)

2.) interest and dividend income: tailwind (rising interest rates)

3.) realized investment losses: headwind (from both equities and bonds)

 

My guess is we will see Fairfax report a loss of $5 to $10/share share when they report Q2 results. It would be impressive if they are able to get through a bear market is stocks and bonds in 2022 with only a minor hit to BV. We will see.

-----------

Big Movers (so far in Q2):

1.) Atlas            - $170

2.) Blackberry  - $166

3.) Stelco         - $116

 

It looks to me like about 70% of their holdings are down which is likely representative of what is going on in the overall market.

Fairfax Equity Holdings June 2 2022.xlsx