Fairfax stock positions

[petec]

I’m going to stick my head above the parapet and say that Stelco is going to be a good-to-great investment for Fairfax over the next 3-5-10 years, even allowing for their too-high going-in price.

[Xerxes]

I’m going to stick my head above the parapet and say that Stelco is going to be a good-to-great investment for Fairfax over the next 3-5-10 years, even allowing for their too-high going-in price.

 

Pete,

I am going to immortalize this quote.

11/13/2020

 

 

I admit, and I dont know the name, very well, but just the fact it lost +50% of its value, before the pandemic puts the whole 'margin of safety' thing about that framework of valuation into great doubt, in my opinion.

[petec]

 

I am going to immortalize this quote.

 

 

And so you should!

 

By way of explanation, I think it will ooze cash in upcycles, not lose much in downcycles, and allocate capital well. I think through-the-cycle cash flows will allow for a 10 (good) to 15% (great) return on the price paid, with very low risk because there isn't much debt; and I think the real estate is a nice option on the side.

 

My view is that Prem paid a very low multiple of peak free cash flow and a reasonable multiple of average cash flow. The reason the price collapsed was that the cycle collapsed just afterwards. That does not make this a bad long term investment necessarily, but it does make it look badly timed. Then again, it wouldn't have happened any other way. Kestenbaum is not stupid and wouldn't have sold at the bottom of the cycle.

 

 

[Viking]

 

I am going to immortalize this quote.

 

 

And so you should!

 

By way of explanation, I think it will ooze cash in upcycles, not lose much in downcycles, and allocate capital well. I think through-the-cycle cash flows will allow for a 10 (good) to 15% (great) return on the price paid, with very low risk because there isn't much debt; and I think the real estate is a nice option on the side.

 

My view is that Prem paid a very low multiple of peak free cash flow and a reasonable multiple of average cash flow. The reason the price collapsed was that the cycle collapsed just afterwards. That does not make this a bad long term investment necessarily, but it does make it look badly timed. Then again, it wouldn't have happened any other way. Kestenbaum is not stupid and wouldn't have sold at the bottom of the cycle.

 

Just listened to the Stelco Q3 conference call (only 30 minutes; very informative). The company looks to be positioned VERY well. They have spent $1 billion in the past 3 years to get the company positioned to supply the right market segments and be a low cost provider (not funded with debt). Very strategic. Moving forward the company will be shifting capital allocation to focus on shareholders via stock buybacks and dividends. And steel prices have jumped in Q4. Timing for Stelco could not have been better. Earnings should be very good.

 

The general perception when Fairfax made this purchase was it was another mistake. Shitty industry (too cyclical). Overpaid. It looks like Stelco might actually work out well for Fairfax. The Stelco management team looks very good and the strategic plan they are executing is coming together and looks well thought out and is being executed well. Nice to see.

 

We are quick to shit all over Fairfax when it looks like they have made a mistake (i am pointing at me); Stelco is shaping up to be a solid investment. Petec, thanks for keeping it on everyones radar :-)

 

In terms of position size, i think Stelco is around US $145 million for Fairfax. Number 9 largest equity holding in terms of size.

 

Q3 conference call: https://investors.stelco.com/events#past

 

Historical steel pricing: http://steelbenchmarker.com/files/history.pdf

 

[petec]

The $1bn number is 3y free cash flow. They invested $670 of that and paid $330 in dividends/buybacks. Going forward they have basically no more major capex after q4. So free cash flow will come to shareholders.

 

The absolute key difference, it seems to me, between Stelco and the “shitty” things it was compared to (Resolute) is liabilities. Stelco has few (although be careful with the pension and the fact it is carried at a discounted value). That massively limits the downside risk. And the land provides a very nice upside option. It’s a much better judged investment than Resolute imho.

 

EDIT: those are the figures I think they gave on the call. I want to check them.

[Xerxes]

Fair enough, but investment is not only about going with the right business and getting management right. There is also about position sizing.

 

If Berkshire can average-up on Apple or average-down on Bank of America, overtime, there is no excuse for FFH. I understand this might have been a direct sale from previous owner and then a buy from the market.

 

Surely the downside of one big buy on a highly cyclical business overwhelm the upside of any savings that might come from buying direct from the seller in this case.

 

[petec]

It wasn’t a big buy. But it would definitely have been good if they’d had the cash to add this year when it fell.

[cwericb]

"Tracking Prem Watsa's Fairfax Financial Holdings Portfolio - Q3 2020 Update"

 

from Seeking Alpha

 

https://seekingalpha.com/article/4389192-tracking-prem-watsas-fairfax-financial-holdings-portfolio-q3-2020-update?utm_medium=email&utm_source=seeking_alpha&mail_subject=frfhf-tracking-prem-watsa-s-fairfax-financial-holdings-portfolio-q3-2020-update&utm_campaign=rta-stock-article&utm_content=link-0

 

[Viking]

Globe and Mail handed out some awards a couple of weeks ago. AGT is owned by Fairfax and North Point Capital. IPO candidate?

 

It is long article, mostly historical. I copied a couple of parts below.

 

Innovator of the Year: How AGT Food’s Murad Al-Katib elevated Canada’s agriculture brand around the world

 

The Regina-based CEO’s focus on plant-based proteins has opened Canada up to a $10.8-billion market

 

- https://www.theglobeandmail.com/business/rob-magazine/article-innovator-of-the-year-how-agt-foods-murad-al-katib-elevated-canadas/

 

In the early days of the pandemic, when toilet paper and hand sanitizer were hastily hoarded and meat suddenly in short supply, grocery store shelves continued, nonetheless, to groan with bags of lentils, cans of chickpeas, and jars of black beans. Cheap, versatile and shelf-stable, beans were the perfect food for our emergency moment, and there seemed to be no shortage of them. At my house, our COVID cooking went in a related but somewhat different direction. We started regularly experimenting with Beyond Beef crumbles, a veggie ground meat that, it turns out, is a fine replacement for hamburger in tacos, bolognese and shepherd’s pie. Its chief ingredients? Yet more legumes—peas and mung beans, to be precise.

 

Watching all this with interest, from his perch in the Prairies, was Murad Al-Katib, the CEO of AGT Food and Ingredients. Regina-based AGT is one of the world’s largest suppliers of pulses in the world, with 2,000 employees and manufacturing facilities in Western Canada and Quebec, the U.S., Turkey, South Africa and Australia. It supplies the peas that go into the popular Beyond Meat burger, as well as the products that make up Taman, Loblaws’s large line of Middle Eastern foods. But like everyone, Al-Katib was horrified by the loss and devastation wrought by the pandemic, and he was particularly concerned about what it meant for the global food supply. Suddenly, supply chains—rail, shipping—were gripped by delays. Where it would normally take a courier an hour to get payment to a bank, with everyone abruptly working from home, those payments now took days. Imminent product launches were shelved. Al-Katib had to temporarily lay off 75 employees at his head office. COVID-19 cases popped up at AGT plants in Alberta and Quebec. Especially in the confusing, ever-shifting spring, the future was uncertain.

 

But since founding AGT in 2007, Al-Katib has made it his mission to make Canadian agriculture more resilient, nimble and sustainable. And, it turns out, even in the face of an unprecedented health crisis, it more or less was. The feds deemed agriculture essential and, after some initial hiccups, food kept moving. Restaurant orders dried up during the lockdown, but AGT had spent the past four years strengthening its ties to retailers, and global retail demand for those products boomed. “We essentially sold out the crop this year,” Al-Katib says. “The pandemic soaked up our available pulses, durum wheat, milling wheat and canola.”

 

AGT was able to meet that demand in the spring, but by summer’s end, things started to get very tight. It was, for Al-Katib, a good problem to have. “What we’re seeing now,” he says, “is very good performance for the agriculture sector in Western Canada this fall. When supply depletes, prices go up and farmers plant more. And, ultimately, markets re-regulate. That’s the way the world works.”

——————————

 

Like any startup, however, AGT encountered its share of setbacks. The company went public in 2007, just in time for the Great Recession. The convulsions of the Arab Spring made, for a couple of years, some of AGT’s key territories—the Middle East and North Africa—extremely challenging markets to do business in. In the wake of Trump’s election, there was, in Al-Katib’s words, a “whole nationalist, protectionist sentiment going on around the world.” India, with a protein-deficient market that AGT had really started to target, increased its import duties on pulses. In May 2016, AGT stock was trading at $42.05, but by the following year, it had plummeted, and its third-quarter earnings in 2017 were its worst in five years.

 

That same quarter, however, the company’s balance sheet received a noteworthy shot in the arm: Fairfax Financial purchased $190 million of preferred shares in the company. “You don’t have to be a genius to know that when someone’s created a $2-billion company from scratch, there’s something special there,” says Prem Watsa, Fairfax’s founder and CEO. “When you examine his track record, you see that he thinks outside the box.” Watsa was similarly enthusiastic about Al-Katib’s successful bid in 2019 to reprivatize, with Fairfax and Point North Capital, another substantial investor, retaining their equity positions in the company. “The big advantage of being private is you don’t have to worry about short-term consequences,” Watsa says. “You’re building a company for the long term.”

[Xerxes]

Thanks I read that few days ago.

 

These type of business and Al-Katib’s entrepreneurship in building it over the long term is what I like about FFH and hope that we don’t have to lose that. 

 

Unless it is a partial IPO .... but then you are burdening it’s management with quarterly results.

They just have to weigh the pro and cons.

[StubbleJumper]

AGT would be a good candidate to IPO, but it would leave me (and possibly others) scratching my head.  FFH took it private in 2019, so it would be really, really strange to turn around and take it public in 2021.  It might, however, be a good candidate to sell outright to one of the mega-agricorporations out there.  So, would Richardson-Pioneer or Viterra have an interest in it?  Would some large foreign player have an interest (Chinese buyer, ADM, Cargill, Conagra, etc)?

 

Personally, I don't expect to see it IPO'ed, but stranger things have happened.

 

 

SJ

[Xerxes]

They privatized it at a low valuation when it was struggling.

[Viking]

What is the benefit to Fairfax of keeping a business like this private? I get taking it private at a low price; let the company mend itself and get it profitable.

 

If the business is a high moat, predictable, growing cash machine i understand keeping it private (like a Sees Candy).

 

However, will AGT ever be a predictable business? How profitable will a commodity business be over time?  Growing profits over time?

 

If they monetize core businesses like Riverstone my guess is AGT would be sold if the right price could be had. Fairfax has done a few deals where they marry a holding with a larger player to better position the company (and take shares in the larger entity). Lots of interesting options.

 

For the past couple of years most of the equity transactions at Fairfax have been focussed on getting existing holdings positioned better to be successful in the future. Sometimes the solution is a split of the ‘conglomerate’ type business. Sometimes its a merger with another Fairfax company or an outside company. Sometimes it is a reverse takeover of an outside company. A few examples (there are others):

- demerger of Quess from Thomas Cook India

- split of IIFL into three companies: Finance, Wealth and Securities

- Eurobank merger with Grivalia

- AGT take private

- Dexterra reverse takeover of Horizon North

- APR spin into Atlas

- Fairfax Africa spin into Helios

 

These are not small transactions. And they take years to play out. Lots to be learned from these moves. The bottom line, Fairfax is being creative, learning from mistakes, trying to get companies positioned to be successful and taking a long term view.

 

Their equity focus today appears to be on getting current businesses performing at a higher level and not new acquisitions.

 

We have a long history with Fairfax of how they ‘fixed’ many insurance businesses over the years. Lots of steps backwards on the journey but they eventually got it right. It looks like they are using a similar playbook with their now substantial stable of non-insurance equity holdings. In aggregate i like the moves they are making and i think they will, over time, benefit Fairfax shareholders.

 

[StubbleJumper]

There would certainly a good motivation to IPO AGT because the holdco owns 15 or 20% of the outfit, with the remainder scattered across a half-dozen or so insurance subs.  If you IPO only the portion of AGT owned by the holdco, that would shore up the holdco cash situation (between the Riverstone sale and an AGT IPO, they would probably fully satisfy their holdco cash needs in 2021).  What is more, if your IPO price is sufficiently high, it would enable you to mark to market the positions owned by the subs, which would improve their premiums:statutory-capital ratio and enable them to write a bit more business during 2021.  This is of particular importance for the Crum.

 

But, as I would still find it a bit strange to take it private and IPO it again within a two year span.

 

 

SJ

[Viking]

Ok... another week another +$500 million increase in the equity portfolio :-)  I added the BB debentures ( to provide directional valuation) and also added a bunch of the smaller positions that are on their 13F (Crescent Capital, Micron, Mastercraft, Lumen, Franklin, Alphabet, Fitbit and Gildan). US$ weakness is now starting to become a tailwind for non-US equities.

 

My math says Farifax's equity portfolio is now up US $1.6 billion (+40%) since Sept 30. Crazy.

- mark to market = $457 + $63 (ATCO warrants) = $520 million (= almost $20/share)

 

For reference, FFH market cap is US$9.75 billion (Dec 4). BV = US$422/share (Sept 30).

 

My rough estimate is Fairfax's equity portfolio is now a little < $1 billion from its value at Dec 31, 2019. (The stock is trading down 24% compared to Dec 31 2019.) What stocks are down the most compared to Dec 31 2019?

1.) Eurobank  - $490 million

2.) Atlas        - $315 million

 

A number of equities share price is now higher than where it closed Dec 31, 2019 (BB, Stelco, Resolute, Quess).

 

The interesting thing with the equity portfolio is nothing looks nosebleed (crazy high) value. This bodes well for continued gradual increases :-)   

Fairfax_Equity_Holdings_Dec_4_2020.xlsx

[Xerxes]

There would certainly a good motivation to IPO AGT because the holdco owns 15 or 20% of the outfit, with the remainder scattered across a half-dozen or so insurance subs.  If you IPO only the portion of AGT owned by the holdco, that would shore up the holdco cash situation (between the Riverstone sale and an AGT IPO, they would probably fully satisfy their holdco cash needs in 2021).  What is more, if your IPO price is sufficiently high, it would enable you to mark to market the positions owned by the subs, which would improve their premiums:statutory-capital ratio and enable them to write a bit more business during 2021.  This is of particular importance for the Crum.

SJ

 

Bingo !

[Viking]

The Fairfax Africa transaction with Helios looks like a positive move for Fairfax. Time, of course, will tell. Clearly, unlike India, Africa was a bridge too far for Fairfax. This is another example of Fairfax (finally) recognizing a mistake and finding a creative solution.

 

It took Fairfax many years to get their insurance businesses performing to an acceptable level. It looks to me like Fairfax is slowly making improvements on the investing side of the business. The overall quality of the equity portfolio they have looks to be slowly improving (looking from a multi-year perspective).

—————————————-

 

Fairfax Financial reboots its African investments with Nigerian-born entrepreneurs from Helios

- https://www.theglobeandmail.com/business/article-fairfax-financial-reboots-its-african-investments-with-nigerian-born/

 

A pair of Nigerian-born entrepreneurs are out to duplicate in Africa what some of the world’s most successful asset managers have done in North America, with a helping hand from Prem Watsa, chairman and chief executive officer of Fairfax Financial Holdings Ltd FFH-T +0.03%increase

.

 

Tope Lawani and Babatunde Soyoye, co-founders of US$3.6-billion fund manager Helios Holdings Ltd., will close a merger on Wednesday with Toronto Stock Exchange-listed Fairfax Africa Holdings Corp. FAH-U-T +3.59%increase

, which Mr. Watsa took public in 2017. The new company, called Helios Fairfax Partners Corp., ranks among the largest Africa-focused private-equity investors.

 

“This is a new era for Fairfax,” Mr. Watsa said in an interview. He said the partnership with Mr. Lawani and Mr. Soyoye, a year in the making, is an example of Toronto-based Fairfax joining forces with proven local investors as the company expands globally. Fairfax also has a TSX-listed subsidiary that invests in India; Prime Minister Narendra Modi recently spoke at its investor event.

 

For Mr. Lawani and Mr. Soyoye, marrying their 16-year-old firm with TSX-listed Fairfax Africa means gaining access to permanent capital for their investments, rather than constantly raising a fund, investing and then handing the money back to institutional investors. Trailblazing North American platforms such as Blackstone Group Inc., Brookfield Asset Management Inc. and Onex Corp. use the approach that Helios Fairfax Partners is adopting, with a public company parent overseeing a series of private funds.

 

While Mr. Lawani and Mr. Soyoye are proudly Nigerian, they learned the investment business at a leading U.S. private-equity firm, Texas-based TPG Capital.

 

Mr. Lawani, who holds an engineering degree from the Massachusetts Institute of Technology and a law degree and MBA from Harvard, worked on TPG buyouts of Burger King and brewer Scottish & Newcastle’s chain of 1,450 pubs in Britain. Mr. Soyoye, a British-educated engineer who also has an MBA, covered telecom and media companies at TPG.

 

The two formed London-based Helios with backing from investors such as the World Bank, and raised three funds. A new, US$1.25-billion fund is currently being marketed. In a press release, Mr. Lawani said joining forces with Fairfax “will strengthen our ability to deliver on our mission to generate globally competitive investment returns and create positive socioeconomic development outcomes for Africa by building profitable, value-creating and socially responsible businesses.”

 

For Fairfax, merging with Helios brings new leadership to an African division that has performed poorly of late, after making its debut on the TSX three years ago at US$10 a share. Over the past year, Fairfax Africa lost money on investments in several regional banks and its stock closed Tuesday at $4.04.

 

Helios invests in a number of sectors, including financial services, energy services, telecom, media and technology. The fund manager owns businesses in 30 countries, including South Africa’s largest outdoor sign company, a Nigerian cellphone tower operator, insurers and pension fund managers.

 

The merger will see Helios’s principals own 45.9 per cent of the combined public company, while Fairfax Financial will retain voting control. Helios’s founders are sharing 25 per cent of the carried interest – the profit the manager makes on its share of investments – in their first three funds with shareholders in the new company. It is common for founders to keep all the carried interest on older funds when selling private-equity businesses. Helios will evenly split the carried interest on current and future funds.

[petec]

If you include dividends Fairfax is now in the black on Stelco.

 

Something of a record - only took two years ;)

[Viking]

If you include dividends Fairfax is now in the black on Stelco.

 

Something of a record - only took two years ;)

 

Yes, i was thinking the same thing. Steel prices continue to increase. Stelco is positioned very well. Earnings should be very strong moving forward and management has said capital return is their focus. Gotta love cyclicals and the volatility.

 

So Fairfax continues to trade 25% below where it was trading in January. Under the hood, many of their equity holdings are now trading higher than where they were trading in January. Their insurance businesses are in a hard market. Runoff was sold (will close in Q1) so liquidity is not a concern. At some point in time Mr Market will figure it out :-)

[StubbleJumper]

If you include dividends Fairfax is now in the black on Stelco.

 

Something of a record - only took two years ;)

 

 

Don't look now, but Eurobank seems to have doubled over the past month....

 

 

SJ

[Xerxes]

I think the downdraft in FFH shares in mid-Dec were really about concerns about insurance side, hurricane, forest fire and coverage for liabilities. Right after Q3 results it rallied, and not because of its equity investment in my humble opinion.

 

That said the equity investments are doing well bouncing back, ...... but i think the market will give a proper re-rate only after Prem has loaded up a 'slug' of shares using FFH's balance sheet.

 

That is a true acid test that shows, yes, then company is capitalized enough that it can buy back it shares big. Otherwise, the prevailing view is that why the company wouldn't want to buy back its own shares. Part of that concern has naturally been alleviated by Prem's personnel bet back in June. He has to break that knot (balancing buyback with liquidity) in the eyes of the market.

 

My crystal ball had predicted that a big buyback would happen in this quarter or next, and that by the time his shareholder letter comes out in Feb/March, he will have a list of things he has done. And i believe you will see him in BNN discussing.

 

 

PS: too bad i was really busy loading up BRK shares in March-April; the real ticket was resolute forest. That was a true classic value investor bet bought at a dislocated price, in a market where the liquidity was being sucked out in hurricane, but with a massive margin of safety. So low of a price that its dividend from few months was larger than its market capitalization.

 

A six fold gain since March.

[Viking]

My read is Fairfax shares sold off so aggressively due to a number of reasons:

1.) fear of covid direct impact to insurance subs results

2.) fear of economic recession and subsequent hit to equity portfolio (comprised of mostly cyclical stocks)

3.) fear of active catastrophe season impact on insurance subs

4.) fear of bond yields cratering and impact on bond portfolio in future years

5.) capitulation in sentiment - shareholders throwing in the towel

 

So we had shares trading below 0.6xBV in May. And then falling back to almost the same low in October - the stock was trading down 45% from January. I think sentiment is the key reason for the bloodbath - who wanted to own Fairfax?

 

Despite the big gain in shares in November the stock is still very cheap. The question is who wants to own this company moving forward? Not many current board-members. I am happy to own it today primarily because i have not been scarred from having owned it the past 7 or 8 years. Shakespeare himself could not have written a more tragic story of woe.

 

My focus is what is going on under the hood at Fairfax. My current view is there is much to like. As long as that continues i am not too fussed about the current valuation. What i have learned is eventually Mr Market figures things out.

 

PS: or perhaps as Xerxes suggests, Prem will pull another rabbit out of his hat and find a creative way to buy back a slug of stock... something he has done in the past. That would be ok too :-)

[petec]

I will be astonished, and actually a bit disappointed, if they do a large buyback.

 

They have consistently communicated that supporting the subs to take advantage of the hard market is the priority. And that's exactly the right decision. Buybacks are an excellent use of spare capital when shares are cheap, but reinvesting to grow at high returns on capital should always come first. Building per share value via growth has many advantages over doing it via buybacks. For example it can augment competitive positions and impact morale in a way that buybacks can't.

 

They can buy back shares all they like in the next soft market. But despite all the positive moves made recently, they still don't have spare capital, so for now they should allocate what they have to growth.

 

I might think differently if the stock traded at 0.4x or 0.5x book, but it doesn't.

[Viking]

Lots of love for Stelco; 2021 is shaping up to be a stellar year. Due partly to steel pricing and also the investments (capacity expansion) the company recently made coming online at the perfect time. Lucky and smart is a good combination...

 

As a reminder Fairfax owns 14% of Stelco = 13 million shares. Shares were trading at CAN$11.36 on Sept 30. So shares are up over CAN $100 million in the last 10 weeks; this increase will flow though BV.

 

Stelco has stated that earnings will largely be returned to shareholders moving forward. Their investment phase is largely completed. As Stelco earnings shoot higher we should see some combination of dividend, stock buyback or special dividend (or all three) at some point in 1H 2021. This would be good for Fairfax’s interest and dividend income.

———————————

Small cap to watch: This steelmaker’s shares have doubled since September and analysts are racing to hike price targets

- https://www.theglobeandmail.com/investing/markets/inside-the-market/article-stelco-shares-are-trading-at-a-two-year-high-heres-why/#comments

 

Shares of Canadian steelmaker Stelco Holdings Inc. are surging amid the rising price of its main commodity, supply shortages and the so-called “recovery trade” as investors start focusing on life after the pandemic.

 

The Hamilton-based company’s shares are up 13 per cent in the past five days and have risen by about 120 per cent in the past three months. The stock traded as high as $20.52 in early trading on Friday, its highest point in about two years. Its all-time low since going public at $17 in Nov. 2017 was $3.24, reached in March amid the pandemic-induced market meltdown.

 

Stelco produces and sells steel products including hot-rolled coil (HRC) and cold-rolled coil (CRC) to customers in the steel service center, appliance, automotive, energy, construction, pipe and tube industries in North America.

 

The price of HRC, the company’s main commodity, has doubled since August to about US$900 a ton, which is helping to drive the stock higher, says Maxim Sytchev, an analyst and managing director of industrial products at National Bank Financial.

 

Mr. Sytchev says the HRC price increase is driven by supply curtailments and a shortage of scrap metal during the pandemic “as it impacts the input pricing for electric arc furnace players.”

 

He says the consensus is that HRC pricing isn’t sustainable at the current level, with average prices for 2021 forecast at about US$700 per ton.

 

Mr. Sytchev has a “sector perform” (similar to hold) on the stock and a target price of $16, which he increased from $12 in mid-November “to account for better commodity pricing.”

 

David Ocampo, an analyst with Cormark Securities, increased his target price on Stelco stock to $33 from $24 this week, after hosting the company’s executives for a day of marketing.

 

“While there were no material updates during our day with management, we did come away with more confidence that Stelco is realizing the cost benefits and increased capacity from its recent blast furnace upgrade,” Mr. Ocampo said in a Dec. 11 note. He has a “buy” rating on the stock.

 

Since emerging from bankruptcy protection in 2017, he said Stelco has “evolved from a producer bogged down by legacy costs to the lowest-cost integrated producer in the industry. With long-term contracts in place for many of its inputs, Stelco has a fairly sticky cost base relative to its competitors. In turn, this allows Stelco to generate superior returns at peak steel prices while still producing income at the bottom of the cycle.”

 

Jennifer Radman, head of investments and senior portfolio manager at Caldwell Investment Management Ltd. says her firm bought Stelco shares in its Caldwell Canadian Value Momentum Fund in October, as part of a strategy “to run a concentrated portfolio of stocks we believe have strong catalysts to drive share prices higher.”

 

Ms. Radman says steel prices are strong and keep moving higher, “but we also see company-specific catalysts with the recent completion of the blast furnace project which is expected to drive margin and volume upside, and allow Stelco to fully capitalize on the strength in steel prices.”

[Xerxes]

Not exactly FFH related, but the banking sector continues to shed "bad loans" it ought to bode well for the sector

 

https://www.wsj.com/articles/greek-banks-turn-corner-with-bad-loan-sales-11607423427

 

"Greek banks, among Europe’s weakest, are getting rid of their bad loans at a healthy clip.

 

In spring, the pandemic interrupted plans among the country’s banks to shed loans still festering from the eurozone crisis a decade ago. But stimulus from central banks and governments globally has sent fresh cash into funds that buy non-performing loans, reinvigorating the efforts.

 

“Many of the investors are in the process of fund raising or have raised additional funds for what they see as a wave of opportunity,” said Alok Gahrotra, a partner in the portfolio lead advisory team at Deloitte that advises NPL buyers and sellers. “There’s a lot of dry powder to deploy.”

 

In late November, Alpha Bank, ALBKY 3.70% one of Greece’s four dominant lenders, said it was in the final stages of selling a €10.8 billion gross loan portfolio—the equivalent of $12 billion—along with its loan-servicing unit. The preferred bidder is U.S. investment firm Davidson Kempner Capital Management LP, which beat out Pacific Investment Management Co. and others for what would be the largest-ever NPL sale in the country. Two more big banks, National Bank of Greece ETE 5.51% and Piraeus Bank, TPEIR 2.01% each aim to sell around €7 billion in loans next year.

 

The three transactions will tap a new state-supported securitization program called Hercules, which was first used by Eurobank SA in June to dispose of €7.5 billion gross loans, “paving the way for its peers,” said Eurobank chief executive Fokion Karavias.

 

The eurozone crisis a decade ago attracted U.S. investing giants such as Pimco, Cerberus Capital Management and Apollo Global Management to buy bad loans from banks for as little as a few cents on the euro. Some investors also scoop up banks’ servicing units to build larger businesses managing bad loans from multiple lenders, a fast-growing sector in Europe. Returns depend on recoveries from selling collateral such as homes and office buildings backing the debt, and fees collected by the servicing units.

 

The investments flow into NPL funds and other credit-focused funds that are mainly marketed to institutional investors and the rich.

 

Ireland, Spain and Italy all whittled down their NPLs this way. Greece’s banks made only limited progress because the country’s recovery took longer and the government and banks were working on measures to attract investors. The key plank, finalized only last year, is the Hercules program. Modeled after a similar program in Italy, the banks sell NPLs to securitization vehicles that issue notes to investors. The banks then buy the safest tranche of notes with a government guarantee for repayment, allowing for larger transactions.

 

“Because banks are allowed to provide senior funding that is guaranteed by the state for a reasonable fee, considerations are much better than outright sales without generating capital burdens,” said Christos Megalou, the chief executive of Piraeus Bank.

 

The uptick in deals is crucial for Greece to bring down the highest NPL level in the European Union. At almost half of loans in 2016, the ratio was around 35% at the start of 2020 and could fall closer to 20% if transactions go ahead as planned. The EU-wide ratio is under 3%. The pandemic caused a few months delay, but bank executives, advisers and ratings firms said most deals should be completed in the first quarter of next year.

 

“Market conditions are normalizing now and there is clearly investor appetite from international investors,” said Lito Chousiada, an analyst in DBRS Morningstar’s global financial institutions group.

 

The disposals mark a turning point for an economy that was still emerging from one of the longest and deepest depressions of modern times when coronavirus hit. Greece’s tourism-heavy economy slumped along with EU peers, though the country has managed better than many in containing coronavirus infections and deaths. The big Greek banks forecast around €5 billion in total new NPLs from the pandemic—not much against the €61.3 billion in NPLs in the country as off June 30, according to ECB data. The banks say years of experience managing delinquent customers should help.

 

Nikos Koutsogiannis, chief financial officer at small lender Attica Bank SA, TATT 3.14% said its NPL ratio fell to around 45% from a 62% peak through two securitizations predating the Hercules program. Attica aims to get the ratio to single digits by securitizing more loans next year. Mr. Koutsogiannis said Attica wants to free up capital for lending to companies in sectors such as the environment, energy and infrastructure that Greece is targeting for foreign and government investment.

 

“We have been working as firemen putting out fires, but at the end of the day banks need to get back to banking,” Mr. Koutsogiannis said."