Fairfax stock positions

[glider3834]

22 hours ago, Viking said:

 

Interesting. With the former rapid new-build growth phase coming to an end I was wondering what the next act was for Atlas/Sokol. But given the size of the company today, 27 new builds is not a crazy big number, especially looking out a few years. The delivery dates are out a fair bit at 2027 and 2028. Chug, chug, chug...

 

It will be interesting to see where interest rates go from here. If they continue lower Atlas could be a beneficiary - they may be able to secure some reasonable long term rates. 

looks like largely due to these new builds gross contracted cash flows are up to $23.4B at Q2 from $18.8B at Q1 

 

 

 

[nwoodman]

6 hours ago, Viking said:

 

@nwoodman thanks for pointing out the obvious to me... I did not realize Poseidon's earnings were tracking that high. At Fairfax's AGM in April, Sokol was sounding very optimistic about Poseidon'e near term prospects (earnings growth next couple of years)... looks like things are playing out as he expected.

 

If Poseidon is able to earn $640 million per year, that would put Fairfax's share at about $277 million (43.3% ownership).

 

For Poseidon, at June 30, 2024, Fairfax had a carrying value of $1.78 billion (and a fair value of $2.05 billion). 

 

Earnings yield on carrying value is 15.6% ($277 / $1.78). That is a pretty good return for a pretty stable leasing business kind of masquerading as a container shipping company.

 

I think it might be time to do an update on Poseidon  My guess is Fairfax's stake in Poseidon is worth much more than its carrying value of $1.78b. Just another example of Fairfax's book value being understated. Fairfax knows this - and this likely explains why they continue to buy back a significant amount of Fairfax shares at a premium to book value. Investors are likely underestimating how much 'hidden value' actually exists on Fairfax's balance sheet today. 

Looking at the numbers  a bit more closely there was a contract settlement with APR Energy that juiced this quarter and is non-recurring.

 

A settlement with Ambar Energia, S.A. significantly influenced the quarter's profit for APR Energy and Atlas Corp as a whole.

1. Settlement Amount: The total settlement was $55 million.
2. Immediate Impact: Of this $55 million, $35 million was new income not related to existing receivables. This $35 million would directly impact the profit for the quarter.
3. Profit Recognition: The financial report states: "Since APR Energy has no further obligations under the contract, the full settlement has been recognized into income in the current period."
4. Quarterly Revenue: APR Energy's total revenue for Q2 2024 was $49.8 million. The $35 million settlement represents a substantial portion of this revenue.
5. Overall Impact: In the consolidated financial summary for Atlas Corp, the total net earnings for Q2 2024 were $159.9 million. The $35 million settlement represents about 22% of this total net earnings.
6. Unusual Nature: This settlement is a one-time event and not part of regular operating income, which makes it particularly significant in assessing the quarter's performance.

 

So adjusting:

1. Reported Net Earnings for Q2 2024: $159.9 million
2. One-off Settlement Amount: $35 million (We're using the $35 million figure as this is the portion that wasn't related to existing receivables)
3. Adjusted Net Earnings: $159.9 million - $35 million = $124.9 million

Still puts earnings around $300m for the first half though.  As I said above, hopefully this all becomes a bit clearer in the coming quarters.  The good news is it seems to be more accretive than I was hoping for this year.

Edited August 10, 2024 by nwoodman

[gfp]

Is $159.9m after tax and $35m a pre-tax number?

[nwoodman]

13 hours ago, nwoodman said:

Looking at the numbers  a bit more closely there was a contract settlement with APR Energy that juiced this quarter and is non-recurring.

 

A settlement with Ambar Energia, S.A. significantly influenced the quarter's profit for APR Energy and Atlas Corp as a whole.

1. Settlement Amount: The total settlement was $55 million.
2. Immediate Impact: Of this $55 million, $35 million was new income not related to existing receivables. This $35 million would directly impact the profit for the quarter.
3. Profit Recognition: The financial report states: "Since APR Energy has no further obligations under the contract, the full settlement has been recognized into income in the current period."
4. Quarterly Revenue: APR Energy's total revenue for Q2 2024 was $49.8 million. The $35 million settlement represents a substantial portion of this revenue.
5. Overall Impact: In the consolidated financial summary for Atlas Corp, the total net earnings for Q2 2024 were $159.9 million. The $35 million settlement represents about 22% of this total net earnings.
6. Unusual Nature: This settlement is a one-time event and not part of regular operating income, which makes it particularly significant in assessing the quarter's performance.

 

So adjusting:

1. Reported Net Earnings for Q2 2024: $159.9 million
2. One-off Settlement Amount: $35 million (We're using the $35 million figure as this is the portion that wasn't related to existing receivables)
3. Adjusted Net Earnings: $159.9 million - $35 million = $124.9 million

26 minutes ago, gfp said:

Is $159.9m after tax and $35m a pre-tax number?

159.9 is post tax for sure and conservatively I assumed  the $35m is pre-tax.  This is a bit of a moving feast, but I take your point.  APR at this point is noise but is surprisingly material noise.

Edited August 11, 2024 by nwoodman

[glider3834]

looks like FFH's own of Eurobank has crept up to 34.5% due to share cancellation - that matches their % share of dividend below

https://www.eurobankholdings.gr/en/grafeio-tupou/etairiki-anakoinosi-06-08-24

 

• On July 31, 2024 Eurobank paid a dividend of approximately $370 million (€342 million). The company’s share of that dividend was approximately $128 million (€118 million), which will be recorded in the company’s consolidated financial reporting in the third quarter of 2024 as a reduction of Eurobank’s carrying value under the equity method of accounting.

 

 

[Haryana]

Go Digit insurance actually shot up 7% yesterday after the Hindenburg short report attacking India's stock market regulator raising serious political concerns on the validity of Indian  stock market itself.

 

[MMM20]

Interesting to see S&P 500 index fund now at ~4% of their 13-F portfolio. Anyone know what's going on there?

[Junior R]

Quote

 

Fairfax Announces Acquisition of Additional Ensign Energy Services Inc. Common Shares

 

[backtothebeach]

Timely sale of MU, well done.

[Junior R]

added Meta and added more of TSM

[dartmonkey]

4 hours ago, Junior R said:

added Meta and added more of TSM

Yes, and Under Armour is the biggest add, 2.4% of the US publicly traded share portfolio. I wonder what they see in it?  Declining revenues, negative earnings recently, 10x highest earnings from a few year's back, so a recovery seems already priced in.

 

Of course, the important thing to keep in mind is that whole portfolio is only worth $1.2b, which is $64b, so 'big' investments revealed in the 13-F are actually tiny compared to things like Poseidon, Eurobank, Recipe, Digit, etc. For example, Blackberry's 'big' 9.8% share of the 13-F portfolio was actually 0.2% of Fairfax's total invested assets, at quarter end, and is even lower now. But don't tell that to the investing community, gotta reduce that share count!

 

 

[Viking]

Here is a quick summary of the changes in Fairfax's 13F filing. I have guessed at the average prices.

 

The subtractions were much bigger than the additions. 

 

Edited August 14, 2024 by Viking

[gfp]

32 minutes ago, Viking said:

Here is a quick summary of the changes in Fairfax's 13F filing. I have guessed at the average prices.

 

The subtractions were much bigger than the additions. 

 

 

At least inside Odyssey Re, the cost basis for UA was $6.994/sh. and the cost basis for VOO was $464.91 / sh.

 

At Odyssey, average price sold for MU was $127.75

Edited August 14, 2024 by gfp

[Viking]

2 minutes ago, gfp said:

 

At least inside Odyssey Re, the cost basis for UA was $6.994/sh. and the cost basis for VOO was $464.91 / sh.

 

@gfp thank fro the info. I did take a quick look at the Odyssey filing that you recently attached - lots of good information in there - but didn't think to use it here  

[petec]

19 hours ago, Junior R said:

 

 

Them and me both. 

 

Couple of questions. First, I think they've bought more than they announced here - why would this be? Source: 

 

 

Second: is this disclosure normal in an announcement like this? 

 

The Common Shares are being acquired by Fairfax for investment purposes and in the future, it may discuss with management and/or the board of directors any of the transactions listed in clauses (a) to (k) of item 5 of Form F1 of National Instrument 62-103 – The Early Warning System and Related Take-over Bid and Insider Reporting Issues.

 

I ask because I could see FFH leading an MBO. FFH and management already own ~50% of the shares between them. Free cash flow yield to equity is nearly 50%. There's a lot of debt, but it would obviously be non-recourse to FFH (like Poseidon) and it is being paid down fast. There are too many rigs in North America but the market is slowly, inexorably tightening driven by 4 factors:

• ROCE at current dayrates is well below replacement cost so nobody is building new land rigs (except Saudi).
• Current drilling techniques are very wear-intensive so rigs are slowly being eliminated from the fleet.
• International drilling is starting to demand higher spec rigs so rigs are leaving North America.
• LNG will spur more drilling for gas.

All these factors are offset by continued gains in efficiency (fewer rigs can do more work) but as long as rigs are not being built the net movement has to be towards a tighter market, I think. That means FCF is more likely to rise than fall over FFH's long term time horizon. And an MBO would get them into bed with Murray Edwards, Ensign's Chairman and the founder of CNQ, arguably one of the greatest Canadian entrepreneurs and capital allocators of them all.

 

So, that bit of disclosure caught my eye. Or is it boilerplate?

 

Thanks, P

 

 

Edited August 15, 2024 by petec

[SafetyinNumbers]

1 hour ago, petec said:

 

Them and me both. 

 

Couple of questions. First, I think they've bought more than they announced here - why would this be? Source: 

 

 

Second: is this disclosure normal in an announcement like this? 

 

The Common Shares are being acquired by Fairfax for investment purposes and in the future, it may discuss with management and/or the board of directors any of the transactions listed in clauses (a) to (k) of item 5 of Form F1 of National Instrument 62-103 – The Early Warning System and Related Take-over Bid and Insider Reporting Issues.

 

I ask because I could see FFH leading an MBO. FFH and management already own ~50% of the shares between them. Free cash flow yield to equity is nearly 50%. There's a lot of debt, but it would obviously be non-recourse to FFH (like Poseidon) and it is being paid down fast. There are too many rigs in North America but the market is slowly, inexorably tightening driven by 4 factors:

• ROCE at current dayrates is well below replacement cost so nobody is building new land rigs (except Saudi).
• Current drilling techniques are very wear-intensive so rigs are slowly being eliminated from the fleet.
• International drilling is starting to demand higher spec rigs so rigs are leaving North America.
• LNG will spur more drilling for gas.

All these factors are offset by continued gains in efficiency (fewer rigs can do more work) but as long as rigs are not being built the net movement has to be towards a tighter market, I think. That means FCF is more likely to rise than fall over FFH's long term time horizon. And an MBO would get them into bed with Murray Edwards, Ensign's Chairman and the founder of CNQ, arguably one of the greatest Canadian entrepreneurs and capital allocators of them all.

 

So, that bit of disclosure caught my eye. Or is it boilerplate?

 

Thanks, P

 

 

Not throwing cold water on a potential MBO but technically they have to file an early warning report for every 2% they buy after the initial EWR when they cross 10%. The most recent purchase pushed them through the next 2% threshold which triggered the EWR and press release.

[petec]

57 minutes ago, SafetyinNumbers said:

Not throwing cold water on a potential MBO but technically they have to file an early warning report for every 2% they buy after the initial EWR when they cross 10%. The most recent purchase pushed them through the next 2% threshold which triggered the EWR and press release.

 

Perfect, that's what I needed, thanks.

[Junior R]

9 hours ago, petec said:

 

Them and me both. 

 

Couple of questions. First, I think they've bought more than they announced here - why would this be? Source: 

 

 

Second: is this disclosure normal in an announcement like this? 

 

The Common Shares are being acquired by Fairfax for investment purposes and in the future, it may discuss with management and/or the board of directors any of the transactions listed in clauses (a) to (k) of item 5 of Form F1 of National Instrument 62-103 – The Early Warning System and Related Take-over Bid and Insider Reporting Issues.

 

I ask because I could see FFH leading an MBO. FFH and management already own ~50% of the shares between them. Free cash flow yield to equity is nearly 50%. There's a lot of debt, but it would obviously be non-recourse to FFH (like Poseidon) and it is being paid down fast. There are too many rigs in North America but the market is slowly, inexorably tightening driven by 4 factors:

• ROCE at current dayrates is well below replacement cost so nobody is building new land rigs (except Saudi).
• Current drilling techniques are very wear-intensive so rigs are slowly being eliminated from the fleet.
• International drilling is starting to demand higher spec rigs so rigs are leaving North America.
• LNG will spur more drilling for gas.

All these factors are offset by continued gains in efficiency (fewer rigs can do more work) but as long as rigs are not being built the net movement has to be towards a tighter market, I think. That means FCF is more likely to rise than fall over FFH's long term time horizon. And an MBO would get them into bed with Murray Edwards, Ensign's Chairman and the founder of CNQ, arguably one of the greatest Canadian entrepreneurs and capital allocators of them all.

 

So, that bit of disclosure caught my eye. Or is it boilerplate?

 

Thanks, P

 

 

Would add if they pay dividend ..Undervalued company

[petec]

3 hours ago, Junior R said:

Would add if they pay dividend ..Undervalued company

 

No way. Repaying debt is very additive here. Not only does market cap rise if EV stays the same, but ev/ebitda multiple will rise as debt comes down and risk reduces (all else equal). Dividend would be dumb here. Target is to repay $600m of debt 2023-2026; they are halfway through, and once that's done they've said they will consider returns to shareholders. But debt has to come first. Added today.

[nwoodman]

https://cyprus-mail.com/2024/08/07/eurobank-completes-mandatory-public-offer-for-hellenic-bank-shares/#
 

“Finally, according to the bank’s articles of association, nominations for the position of director can be submitted by shareholders from August 4, 2024, until the close of business (2:30 p.m. Cyprus time) on August 30, 2024.”

 

Still intrigued to learn whether Hellenic’s current concentrated shareholder base is consistent with listing rules.  Either way it’s an interesting stalemate in terms of a full takeover.  My only concern is the likes of Demetra and ETYK keep agitating for reversal of the merger.  A reversal is highly unlikely, so more an irritation.

[nwoodman]

From Bloomberg: Imports Are Surging Again at US Ports, But Without the Logjams

 

“Today, despite worries about a softening economy, the busiest US port complex — Los Angeles and Long Beach, which account for roughly a third of all container imports to the country — is processing import volumes near the highs set during the pandemic.

The complex had its third-strongest month ever in July, just shy of an all-time high reached in May 2021. Total US container imports through major ports this year will reach 24.9 million measured in 20-foot equivalent units, close to 2021 and 2022 levels that topped 25 million, according the National Retail Federation.”

 

 

“In addition to back-to-school demand and preparation for the year-end holiday season that typically sees an uptick in activity this time of year, volumes have also been affected by moves to build up inventories ahead of potential increases in US tariffs on Chinese goods.”

 

[wondering]

https://www.theglobeandmail.com/business/article-ccm-bauer-true-hockey-sale/

 

"

CCM Hockey, Bauer Hockey LLC and the hockey division of True Temper Sports are all being auctioned by their long-time owners, according to two sources involved in the sales process. The Globe and Mail is not naming the sources because they are not permitted to publicly comment for their employers.

Bauer and True Temper are attempting to take advantage of buyer interest generated by CCM, the first business to hit the market, according to the sources"

 

"

Sagard and Fairfax acquired Bauer out of bankruptcy in 2017 for US$575-million and are targeting a US$800-million exit, according to one of the sources. Bauer’s EBITDA is just more than US$100-million annually, the source said.

In early August, Bauer’s advisers received expressions of interest from 11 potential buyers and moved to the next stage of the sale process with eight players, including several U.S. private equity funds, according to the source, and several bidders for Bauer also looked at CCM."

 

"Bauer set a Sept. 16 deadline to move forward with a maximum of four bidders, and plans to be in the final round of negotiations with one buyer by the end of October, the source said"

 

According to the 2023 shareholder letter Peak Performance (Bauer) has a carrying value of $129M and a market value of $226M.  They actually paid $154M in 2017.  They received $54M in dividends which I guess brought down the carrying value to 129M.

 

At the moment, I can't find their percentage share of Peak Performance.

 

[StubbleJumper]

49 minutes ago, wondering said:

According to the 2023 shareholder letter Peak Performance (Bauer) has a carrying value of $129M and a market value of $226M.  They actually paid $154M in 2017.  They received $54M in dividends which I guess brought down the carrying value to 129M.

 

Yeah, that one wasn't a home run.  They won't lose money on it but you'd hope for a double-digit return when you buy a speciality business out of bankruptcy.

 

 

SJ

Edited August 24, 2024 by StubbleJumper

[SafetyinNumbers]

2 hours ago, wondering said:

According to the 2023 shareholder letter Peak Performance (Bauer) has a carrying value of $129M and a market value of $226M.  They actually paid $154M in 2017.  They received $54M in dividends which I guess brought down the carrying value to 129M.

 

At the moment, I can't find their percentage share of Peak Performance.

 

They own 43% according to the annual report.
 

Given the  purchase price, return of capital from dividends and the rumoured selling price that seems to easily be a double digit return. Also another source of Q4 gains that analysts aren’t factoring in to their estimates.

 

 

Edited August 24, 2024 by SafetyinNumbers

[StubbleJumper]

3 minutes ago, SafetyinNumbers said:

They own 43% according to the annual report.
 

Given the  purchase price, return of capital from dividends and the rumoured selling price that seems to easily be a double digit return. Also another source of Q4 gains that analysts aren’t factoring in to their estimates.

 

Well, I hope you are right, but I haven't seen any combination of rumoured capital gains or annual divvies that gets me to a 10%+ annualized return.  A US$575m acquisition cost and a US$800m sale would be fine if it were a one-year or a two-year hold...but it's been seven years and by the time they get the cash it could be eight years.

 

 

SJ