Fairfax stock positions

[gfp]

Atlas / Poseidon quarterly report for those interested -

https://www.sec.gov/Archives/edgar/data/1794846/000162828024036286/atlascorpq220246-k.htm

[SafetyinNumbers]

2 hours ago, gfp said:

Atlas / Poseidon quarterly report for those interested -

https://www.sec.gov/Archives/edgar/data/1794846/000162828024036286/atlascorpq220246-k.htm

Between EUROB and Poseidon it looks like Assoicates income should be strong again in Q3 (FFH reports on a quarter lag).

[glider3834]

6 hours ago, SafetyinNumbers said:

Between EUROB and Poseidon it looks like Assoicates income should be strong again in Q3 (FFH reports on a quarter lag).

- unfortunately there is a paywall 

https://www.tradewindsnews.com/containers/seaspan-orders-27-container-ships-in-major-multi-billion-return-to-newbuilding-arena/2-1-1690516

[glider3834]

5 minutes ago, glider3834 said:

- unfortunately there is a paywall 

https://www.tradewindsnews.com/containers/seaspan-orders-27-container-ships-in-major-multi-billion-return-to-newbuilding-arena/2-1-1690516

https://www.sec.gov/Archives/edgar/data/1794846/000162828024036286/atlascorpq220246-k.htm

'In June 2024, the Company entered into shipbuilding contracts for the construction of 27 newbuild containership vessels, ranging between 9,000 and 17,000 TEU. Four of these contracts were immediately novated to a customer. 13 of these contracts were thereafter novated to certain nominees and upon delivery, these 13 newbuilds will be chartered by the Company from such nominees under bareboat charters. The vessels will be delivered between 2027 through 2028 and each vessel will commence a long term charter upon delivery.'

[nwoodman]

9 hours ago, gfp said:

Atlas / Poseidon quarterly report for those interested -

https://www.sec.gov/Archives/edgar/data/1794846/000162828024036286/atlascorpq220246-k.htm

For those playing along at home

 

 

1. Ship Operating Expenses: Increased from $96.0 million in Q1 to $114.9 million in Q2, reflecting a 19.7% increase. This rise can be attributed to the growth in the fleet of operating vessels.

2. Depreciation and Amortization: Increased from $112.3 million in Q1 to $131.1 million in Q2, a 16.8% increase. This is primarily due to the continued expansion of the fleet and the reclassification of certain leases from operating to financing.

 

3. General and Administrative Expenses: Increased from $13.3 million in Q1 to $19.8 million in Q2, reflecting a 48.9% increase. The Q2 increase can be partially attributed to a gain recognized in the current period related to the settlement of a contingent consideration asset.

 

4. Operating Lease Expenses: Decreased from $22.7 million in Q1 to $14.1 million in Q2, a 37.9% decrease. This reduction is mainly due to the reclassification of certain leases from operating to financing as a result of purchase options being exercised for several vessels.

 

5. Interest Expense: Increased from $129.1 million in Q1 to $153.1 million in Q2, reflecting an 18.6% increase. This increase is driven by an increase in outstanding debt and other financing balances, as well as an increase in benchmark rates on these financings    .

Edited August 9 by nwoodman

[Viking]

20 minutes ago, glider3834 said:

https://www.sec.gov/Archives/edgar/data/1794846/000162828024036286/atlascorpq220246-k.htm

'In June 2024, the Company entered into shipbuilding contracts for the construction of 27 newbuild containership vessels, ranging between 9,000 and 17,000 TEU. Four of these contracts were immediately novated to a customer. 13 of these contracts were thereafter novated to certain nominees and upon delivery, these 13 newbuilds will be chartered by the Company from such nominees under bareboat charters. The vessels will be delivered between 2027 through 2028 and each vessel will commence a long term charter upon delivery.'

 

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. 

[nwoodman]

6 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. 

Quite the lollapalooza if they get a credit re-rating in conjunction with a drop in rates.   As it is,  they look like they will blow past the FY profit forecast of $400m that Prem mentioned in the 2023 annual,  next quarter, even without a drop in rates.   Now that is truly managing expectations     

 

Using Seaspan's last public share count: The last reported number of outstanding shares for Seaspan before going private was approximately 249.2 million shares. Forecasted annual earnings (based on Fairfax's projection for Poseidon): $400 million Theoretical EPS = $400 million / 249.2 million = $1.60 per share.  This is the number that Wade was referring to in the CC.  If we take the run rate to date for the first 6 months $321m and double it for the remaining 6 months that would give an annualised profit of $641.8m or $2.58 per share.  Perhaps there is revenue/expense mismatching going in the quarter or costs associated with bring new vessels on.  It will be fascinating to see next quarter's results.

Edited August 10 by nwoodman

[Viking]

12 hours ago, nwoodman said:

Quite the lollapalooza if they get a credit re-rating in conjunction with a drop in rates.   As it is,  they look like they will blow past the FY profit forecast of $400m that Prem mentioned in the 2023 annual,  next quarter, even without a drop in rates.   Now that is truly managing expectations     

 

Using Seaspan's last public share count: The last reported number of outstanding shares for Seaspan before going private was approximately 249.2 million shares. Forecasted annual earnings (based on Fairfax's projection for Poseidon): $400 million Theoretical EPS = $400 million / 249.2 million = $1.60 per share.  This is the number that Wade was referring to in the CC.  If we take the run rate to date for the first 6 months $321m and double it for the remaining 6 months that would give an annualised profit of $641.8m or $2.58 per share.  Perhaps there is revenue/expense mismatching going in the quarter or costs associated with bring new vessels on.  It will be fascinating to see next quarter's results.

 

@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. 

Edited August 10 by Viking

[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 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 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 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 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 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.