Fairfax stock positions

[nwoodman]

7 hours ago, Viking said:

 

 

What does Fairfax like about Sleep Country?

 

My guess is Fairfax likes:

• The senior management team.
• The size and stability of the earnings stream that Sleep Country is generating.
• The long term prospects of the business.

 

 

Good post.  I was a little bit ho-hum on this one in terms of economics but quite excited about the management that it brings with it.  Fairfax has a checkered history with retail but you never know when they might come across their Andy Barnard of retail.  Not saying it is the Sleep Country management by any means, but your can hope.

 

“Sleep Country Canada has been guided by a team of experienced leaders since its inception in 1994. Here’s an overview of key management figures and their tenures:

• Christine Magee: Co-founded Sleep Country in 1994 and served as President. She transitioned to Chair of the Board, a position she continues to hold.

• Stephen K. Gunn: Also a co-founder in 1994, Gunn has been integral to the company’s strategic direction. He has served as Executive Co-Chairman and remains actively involved.

• Gordon Lownds: The third co-founder, Lownds played a significant role in the company’s early development. He retired from active management in the early 2000s.

• David Friesema: Joined Sleep Country in 1995 and held various leadership roles, culminating in his appointment as CEO in 2014. Friesema announced his retirement in 2021, with his tenure concluding at the end of that year.

• Stewart Schaefer: Founded Dormez-vous in 1994, which merged with Sleep Country in 2006. He served as Chief Business Development Officer before being appointed President in April 2021. Schaefer became CEO on January 1, 2022, and continues to lead the company.

 

The acquisition of Sleep Country by Fairfax Financial Holdings in October 2024 brings this seasoned management team into Fairfax’s portfolio. This integration not only adds leadership expertise but also provides access to Sleep Country’s established retail systems, including a national network of over 300 stores and multiple e-commerce platforms. This infrastructure aligns with Fairfax’s strategy to enhance its retail operations and customer engagement across its diverse holdings.”

 

People and systems, get this right and the Sleep Country purchase could be accretive across their wider retail portfolio.

[SafetyinNumbers]

18 minutes ago, nwoodman said:

 

• Stewart Schaefer: Founded Dormez-vous in 1994, which merged with Sleep Country in 2006. He served as Chief Business Development Officer before being appointed President in April 2021. Schaefer became CEO on January 1, 2022, and continues to lead the company.

 

My sense with Fairfax is that they will stick with management until management is ready to sell. I assume Stewart is the reason they did this deal and when he’s ready to sell, FFH will also exit just like STLC. For ZZZ and presumably Peak Achievement, buying at a fair price, adding some leverage, stripping cash not needed for reinvestment and exiting at a great price. 

[Viking]

40 minutes ago, nwoodman said:

Good post.  I was a little bit ho-hum on this one in terms of economics but quite excited about the management that it brings with it.  Fairfax has a checkered history with retail but you never know when they might come across their Andy Barnard of retail.  Not saying it is the Sleep Country management by any means, but your can hope.

 

“Sleep Country Canada has been guided by a team of experienced leaders since its inception in 1994. Here’s an overview of key management figures and their tenures:

• Christine Magee: Co-founded Sleep Country in 1994 and served as President. She transitioned to Chair of the Board, a position she continues to hold.

• Stephen K. Gunn: Also a co-founder in 1994, Gunn has been integral to the company’s strategic direction. He has served as Executive Co-Chairman and remains actively involved.

• Gordon Lownds: The third co-founder, Lownds played a significant role in the company’s early development. He retired from active management in the early 2000s.

• David Friesema: Joined Sleep Country in 1995 and held various leadership roles, culminating in his appointment as CEO in 2014. Friesema announced his retirement in 2021, with his tenure concluding at the end of that year.

• Stewart Schaefer: Founded Dormez-vous in 1994, which merged with Sleep Country in 2006. He served as Chief Business Development Officer before being appointed President in April 2021. Schaefer became CEO on January 1, 2022, and continues to lead the company.

 

The acquisition of Sleep Country by Fairfax Financial Holdings in October 2024 brings this seasoned management team into Fairfax’s portfolio. This integration not only adds leadership expertise but also provides access to Sleep Country’s established retail systems, including a national network of over 300 stores and multiple e-commerce platforms. This infrastructure aligns with Fairfax’s strategy to enhance its retail operations and customer engagement across its diverse holdings.”

 

People and systems, get this right and the Sleep Country purchase could be accretive across their wider retail portfolio.

@nwoodman, that is great insight. I hope Fairfax is following Buffett’s model and only buying companies where the management team wants to stick around and continue to run the business. The senior team at Sleep Country is very good. That can only help Fairfax’s other large Canadian holdings, like Recipe. The team at Peak Achievement also looks pretty good - they have executed a pretty solid turnaround over the past 6 years.

[Viking]

31 minutes ago, SafetyinNumbers said:

My sense with Fairfax is that they will stick with management until management is ready to sell. I assume Stewart is the reason they did this deal and when he’s ready to sell, FFH will also exit just like STLC. For ZZZ and presumably Peak Achievement, buying at a fair price, adding some leverage, stripping cash not needed for reinvestment and exiting at a great price. 

@SafetyinNumbers, this is an interesting take. Makes sense. Fairfax is a total return investor. If they get an opportunity to sell/monetize an asset at an attractive price they probably will. This is one area where they differ from Buffett/BRK. I like Fairfax’s approach (for them).

Edited 22 hours ago by Viking

[SafetyinNumbers]

27 minutes ago, Viking said:

@SafetyinNumbers, this is an interesting take. Makes sense. Fairfax is a total return investor. If they get an opportunity to sell/monetize an asset at an attractive price they probably will. This is one area where they differ from Buffett/BRK. I like Fairfax’s approach (for them).

I think the risk also goes up when management changes and ultimately they are generalists so it’s sensible to sell at the same time.

[nwoodman]

fooling around with some valuations for Eurobank.  Nida Iqbar at Ms has a valuation of €2.63.  Seems a bit on the conservative side to me but decent margin of safety at these prices.  

 

1. Gordon Growth Model (GGM)

Key Assumptions:
- Current TBV: €2.27
- Sustainable RoTE: 15% (management's target)
- CoE: 10.5% (RFR 3.5% + Beta 1.1 x ERP 6.5%)
- Long-term growth: 2.5%

Calculation:
TBV * (RoTE - g)/(CoE - g) = €2.27 * (15% - 2.5%)/(10.5% - 2.5%) = €3.18

2. Sum-of-Parts (Geographic segments)
Region | Earnings | Multiple | Value
Greece: €647m x 8.5 P/E = €5,500m
Bulgaria: €154m x 9.0 P/E = €1,386m  
Cyprus Combined: €335m x 10.0 P/E = €3,350m
Other: €70m x 8.0 P/E = €560m

Total Equity Value: €10,796m
Shares Outstanding: 3.7bn
Per Share: €2.92

 

3. Justified P/TBV Multiple
Components:
- Target RoTE: 15%
- CoE: 10.5%
- Growth: 2.5%
- Payout ratio: 50%

Justified P/TBV = (RoTE - g)/(CoE - g) * Payout = 1.35x
Applied to 2025E TBV of €2.45 = €3.31

4. Dividend Discount Model (DDM)
Assumptions:
2024E DPS: €0.29 (50% of €0.58 EPS)
2025E DPS: €0.31
2026E DPS: €0.33
Terminal growth: 2.5%
CoE: 10.5%

DDM Value: €3.05

 

5. Market-Based Approach
Peer Group Metrics:
- Average P/TBV: 0.9x
- Average P/E: 7.5x
- Premium justified for Eurobank: 20% (better RoTE, asset quality)

Applied to:
2024E EPS of €0.58 * (7.5x * 1.2) = €5.22
Current TBV €2.27 * (0.9x * 1.2) = €2.45

Average: €3.84

 

Final Blended Price Target: €3.10

 

Weightings:
- GGM: 25% (€3.18 * 0.25)
- SOTP: 25% (€2.92 * 0.25)  
- Justified P/TBV: 20% (€3.31 * 0.20)
- DDM: 15% (€3.05 * 0.15)
- Market-Based: 15% (€3.84 * 0.15)

 

Key Upside Drivers:
1. Hellenic Bank synergies (€120m by 2027)
2. RRF-driven loan growth
3. Cost of risk normalization
4. Higher dividend payout potential
5. Geographic diversification benefits

 

Key Risks:
1. Interest rate environment
2. Greek macro risks
3. Integration execution risk
4. Competition in core markets
5. Regulatory changes

 

The €3.10 price target implies 56% upside from current price of €1.99, justified by:
- Sustainable RoTE above cost of equity
- Strong capital position
- Geographic diversification
- Clear strategic direction
- Asset quality improvement
- Dividend growth potential

 

Models to one side, Fokian Karavias and co seem like pretty savvy operators.  It will be interesting to see if they can sniff out some more acquisitions.