Fairfax Africa

[Xerxes]

I was at the AGM last year, I recall the team had to do a lot of explaining for FAH performance

I am eager to see what they will say in AGM this year with share price down so much.

 

Incidentally the Letter is out this weekend

[hobbit]

Annual letter-

 

 

mistakes with ATMA ( significantly less value in holdings in countries apart from Nigeria) , UBN might turn out decent.

 

CIG - debt restructuring in place but do not be hopeful of turn around anytime soon. I would classify this as a mistake too.

 

No significant changes anywhere else.

 

My conclusion - extremely undervalued at these prices unless you put the value of their entire equity stake at zero which clearly does not seem to be the case. PT $8+

 

 

[petec]

Annual letter-

 

 

mistakes with ATMA ( significantly less value in holdings in countries apart from Nigeria) , UBN might turn out decent.

 

CIG - debt restructuring in place but do not be hopeful of turn around anytime soon. I would classify this as a mistake too.

 

No significant changes anywhere else.

 

My conclusion - extremely undervalued at these prices unless you put the value of their entire equity stake at zero which clearly does not seem to be the case. PT $8+

 

I read it more positively. UBN is going actively well, and ATMA is starting to receive dividends from UBN and ABCBotswana. CIG is in deep turnaround but got better in 2h, especially 4q, and liberalization of electricity in SA might be a boost.

 

I’m not invested but it’s looking deeply undervalued. How much of the ATMA stake is covered by UBN now? And Nova Pioneer is going to be a superb long term holding.

[jfan]

FAH seems to be trading quite below reasonable cash and cash equivalent values with no fund level debt.

 

At this stage, what are the risks associated with investing at this point in time? Here is a short list that I can see:

a) Sudden increasing inflation in the countries they are in

b) Default risk of their underlying loans and bonds especially with CIL

c) Poor future capital allocation of cash and cash equivalents

d) For us Canadians, US-Canadian exchange rates

e) Falling interest rates causing it to not be able to cover fund expenses

 

Anything else?

 

[petec]

Honestly I think at this price the “risk” is that something goes right.

[hobbit]

https://www.canadianinsider.com/node/7?ticker=FAH

 

CEO bought 7K shares

[bearprowler6]

This stock is very thinly traded. At the first annual meeting, 2 years ago now, management indicated they would be taking steps to address this issue. Nothing has been done. Depending on the size of your investment this may become a problem down the road should you wish to or need to liquidate. I believe this to be a major knock against the stock and one of the major reasons it has drifted towards zero since the IPO. You will never get major buying or institutional support for this stock until this issue is addressed.

[petec]

This stock is very thinly traded. At the first annual meeting, 2 years ago now, management indicated they would be taking steps to address this issue. Nothing has been done. Depending on the size of your investment this may become a problem down the road should you wish to or need to liquidate. I believe this to be a major knock against the stock and one of the major reasons it has drifted towards zero since the IPO. You will never get major buying or institutional support for this stock until this issue is addressed.

 

Maybe not, but equally it will go up a lot if performance improves because *any* buying will move the stock.

[bearprowler6]

This stock is very thinly traded. At the first annual meeting, 2 years ago now, management indicated they would be taking steps to address this issue. Nothing has been done. Depending on the size of your investment this may become a problem down the road should you wish to or need to liquidate. I believe this to be a major knock against the stock and one of the major reasons it has drifted towards zero since the IPO. You will never get major buying or institutional support for this stock until this issue is addressed.

 

Maybe not, but equally it will go up a lot if performance improves because *any* buying will move the stock.

 

Petec.....respectively, the issue is not whether the stock price goes up or not on good performance. The lack of liquidity of the stock makes it impossible for all but he smallest investor to take a position in the stock and have any hope at all of exiting when they need or want to. The traded volume yesterday was 3509 shares (closing share price is $3.01). So sure a very small retail investor can accumulate a couple of thousand shares at the current price and then trade out when/if the price recovers to...lets say even the IPO price of $10. But honestly, is this really what we are trying to do here?

 

Fairfax Africa shares cannot be accumulated in any meaningful amount without dramatically moving up the share price. Also, once accumulated, a significant number of  shares cannot be disposed of without greatly influencing the share price downward.

 

In my view, why bother. There are simply too many other opportunities out there where similar profit opportunities exist without the constraint of trading liquidity to worry about.

 

Furthermore, management did say they would address this issue (lack of liquidity for the shares) and have not done so. Perhaps this alone is reason enough to avoid these shares.

[matts]

This stock is very thinly traded. At the first annual meeting, 2 years ago now, management indicated they would be taking steps to address this issue. Nothing has been done. Depending on the size of your investment this may become a problem down the road should you wish to or need to liquidate. I believe this to be a major knock against the stock and one of the major reasons it has drifted towards zero since the IPO. You will never get major buying or institutional support for this stock until this issue is addressed.

 

Maybe not, but equally it will go up a lot if performance improves because *any* buying will move the stock.

 

If you look at it as a multi-year hold, it's less of an issue. In 3 years either the fund is successful, which means it will have a much higher market cap and likely more liquidity, or it will keep languishing and possibly even get liquidated.

Petec.....respectively, the issue is not whether the stock price goes up or not on good performance. The lack of liquidity of the stock makes it impossible for all but he smallest investor to take a position in the stock and have any hope at all of exiting when they need or want to. The traded volume yesterday was 3509 shares (closing share price is $3.01). So sure a very small retail investor can accumulate a couple of thousand shares at the current price and then trade out when/if the price recovers to...lets say even the IPO price of $10. But honestly, is this really what we are trying to do here?

 

Fairfax Africa shares cannot be accumulated in any meaningful amount without dramatically moving up the share price. Also, once accumulated, a significant number of  shares cannot be disposed of without greatly influencing the share price downward.

 

In my view, why bother. There are simply too many other opportunities out there where similar profit opportunities exist without the constraint of trading liquidity to worry about.

 

Furthermore, management did say they would address this issue (lack of liquidity for the shares) and have not done so. Perhaps this alone is reason enough to avoid these shares.

 

If you look at it as a multi-year hold, it's less of an issue. In 3 years either the fund is successful, which means it will have a much higher market cap and likely more liquidity, or it will keep languishing and possibly even get liquidated.

 

It seems to me like you are looking at it as some levered ETF that you want to get out of once it pops, and in that case, you are right, it's not going to do a good job at that.

 

 

[petec]

This stock is very thinly traded. At the first annual meeting, 2 years ago now, management indicated they would be taking steps to address this issue. Nothing has been done. Depending on the size of your investment this may become a problem down the road should you wish to or need to liquidate. I believe this to be a major knock against the stock and one of the major reasons it has drifted towards zero since the IPO. You will never get major buying or institutional support for this stock until this issue is addressed.

 

Maybe not, but equally it will go up a lot if performance improves because *any* buying will move the stock.

 

If you look at it as a multi-year hold, it's less of an issue. In 3 years either the fund is successful, which means it will have a much higher market cap and likely more liquidity, or it will keep languishing and possibly even get liquidated.

Petec.....respectively, the issue is not whether the stock price goes up or not on good performance. The lack of liquidity of the stock makes it impossible for all but he smallest investor to take a position in the stock and have any hope at all of exiting when they need or want to. The traded volume yesterday was 3509 shares (closing share price is $3.01). So sure a very small retail investor can accumulate a couple of thousand shares at the current price and then trade out when/if the price recovers to...lets say even the IPO price of $10. But honestly, is this really what we are trying to do here?

 

Fairfax Africa shares cannot be accumulated in any meaningful amount without dramatically moving up the share price. Also, once accumulated, a significant number of  shares cannot be disposed of without greatly influencing the share price downward.

 

In my view, why bother. There are simply too many other opportunities out there where similar profit opportunities exist without the constraint of trading liquidity to worry about.

 

Furthermore, management did say they would address this issue (lack of liquidity for the shares) and have not done so. Perhaps this alone is reason enough to avoid these shares.

 

If you look at it as a multi-year hold, it's less of an issue. In 3 years either the fund is successful, which means it will have a much higher market cap and likely more liquidity, or it will keep languishing and possibly even get liquidated.

 

It seems to me like you are looking at it as some levered ETF that you want to get out of once it pops, and in that case, you are right, it's not going to do a good job at that.

 

Exactly.

 

Separately, I’m sceptical management can really do much about liquidity.

[elliott]

FAH seems to be trading quite below reasonable cash and cash equivalent values with no fund level debt.

 

At this stage, what are the risks associated with investing at this point in time? Here is a short list that I can see:

a) Sudden increasing inflation in the countries they are in

b) Default risk of their underlying loans and bonds especially with CIL

c) Poor future capital allocation of cash and cash equivalents

d) For us Canadians, US-Canadian exchange rates

e) Falling interest rates causing it to not be able to cover fund expenses

 

Anything else?

 

several of the companies they hold are not making money, at least in a significant amount.  I think what they need is for the businesses to become profitable, or at least for investors to believe that will happen. I exited some months ago because I simply could not see that moment coming.  And I like the way they do things, the common sense they bring into the companies they invest in...

[petec]

FAH seems to be trading quite below reasonable cash and cash equivalent values with no fund level debt.

 

At this stage, what are the risks associated with investing at this point in time? Here is a short list that I can see:

a) Sudden increasing inflation in the countries they are in

b) Default risk of their underlying loans and bonds especially with CIL

c) Poor future capital allocation of cash and cash equivalents

d) For us Canadians, US-Canadian exchange rates

e) Falling interest rates causing it to not be able to cover fund expenses

 

Anything else?

 

several of the companies they hold are not making money, at least in a significant amount.  I think what they need is for the businesses to become profitable, or at least for investors to believe that will happen. I exited some months ago because I simply could not see that moment coming.  And I like the way they do things, the common sense they bring into the companies they invest in...

 

I agree with this and also exited. I think the gems are Nova Pioneer, UBN, and ABC Botswana. There may also be gems in AFGRI but the overall business has not performed. I suspect there are some very good bits of CIG too. But both CIG and AFGRI need the economy to work, especially in SA, and that’s a long way away sadly. In the end I decided the good bits were too small to move the needle. But that was at more than twice the current price. I suspect there are good returns to be had from here. But I suspect that’s also true of a lot of things. I recently re-bought FIH. That has more visibility for me.

[elliott]

during the webcast of today Wilkerson admitted that they learned some lessons from Atlas Mara and CIG

specifically, he said they were up against too many challenges there, and he summarized the idea quoting Buffett

 

I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.

 

at least, thats something

 

[Xerxes]

during the webcast of today Wilkerson admitted that they learned some lessons from Atlas Mara and CIG

specifically, he said they were up against too many challenges there, and he summarized the idea quoting Buffett

 

I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.

 

at least, thats something

 

IMHO, the difference between buffet wannabes and buffet is that the former quotes him a lot, while the latter stick to their guns no matter what. I think the initial idea of an African investment fund is great thing and a potential call option on Africa growth, but I would have never made that a separate ship from the rest of the FFH family.

 

FIH is different as I think there is enough concentration and is large enough.

 

incidentally, here is a great article in The Economist on Africa

 

https://www.economist.com/special-report/2020/03/26/africa-is-changing-so-rapidly-it-is-becoming-hard-to-ignore

 

My favorite part of the article "After centuries on the periphery, Africa is set to play a much more important role in global affairs, the global economy and the global imagination. Asia’s economic and population booms may continue to dominate the first part of this century, but Africa’s weight will grow in the second half....Demography is a big part of it. Africa’s population will almost certainly double by 2050, giving it more than a quarter of the world’s total. That alone commands attention. But if accompanied by matching growth in GDP, economies such as Nigeria could overtake France or Germany in size …."

 

 

 

[petec]

Notable that just cash and treasuries here, less all liabilities (there are virtually none), is about $2.30 per share.

 

At $2.90 you're paying 60c for some genuinely attractive assets in UBN, Nova Pioneer, ABC Botswana, maybe bits of CIG and AFGRI. And if they can deploy some cash in this selloff...

 

 

[elliott]

Notable that just cash and treasuries here, less all liabilities (there are virtually none), is about $2.30 per share.

 

At $2.90 you're paying 60c for some genuinely attractive assets in UBN, Nova Pioneer, ABC Botswana, maybe bits of CIG and AFGRI. And if they can deploy some cash in this selloff...

 

I would be cautious looking at cash.

its certainly possible (they said this yesterday) that some of the businesses need more cash to survive in the next months/years, and that Fairfax will provide it. so, the question comes back again to whether you think those businesses will be profitable one day, thus the extra cash well invested, or whether they will not, and thus Fairfax is just falling into the sink hole phallacy.

 

[elliott]

oh, regarding new acquisitions, consider that now travel is very difficult in many parts of Africa.

management said that acquisition work is certainly affected by the covid19 situation.

[petec]

Cash - yes - but it is still a lot.

 

Travel - yes -  but plenty of potential investments are listed and don't require cash.

 

They said they were hoping to have news on CIG and ATMA soon. I wondered if they are thinking of taking them private.

[petec]

Pure speculation, but if FAH consolidates ATMA at any point, and ATMA consolidates UBN, the P/BV and P/E metrics here get transformed overnight.

[Thrifty3000]

I love that the performance fee doesn’t kick in again until book value exceeds $11.69 per share.

[Thrifty3000]

Notable that just cash and treasuries here, less all liabilities (there are virtually none), is about $2.30 per share.

 

At $2.90 you're paying 60c for some genuinely attractive assets in UBN, Nova Pioneer, ABC Botswana, maybe bits of CIG and AFGRI. And if they can deploy some cash in this selloff...

 

I would be cautious looking at cash.

its certainly possible (they said this yesterday) that some of the businesses need more cash to survive in the next months/years, and that Fairfax will provide it. so, the question comes back again to whether you think those businesses will be profitable one day, thus the extra cash well invested, or whether they will not, and thus Fairfax is just falling into the sink hole phallacy.

 

They have restrictions limiting the amount they can invest in a single opportunity to no more than 25% of the portfolio. And, only 2 holdings are allowed to consume up to 25%. After those 2 the limit is 20% for the rest. I'm not sure whether that's good or bad. In a way it protects investors from overallocation, but it also restricts capacity to bail out troubled investees.

[hobbit]

https://finance.yahoo.com/news/atlas-mara-limited-announces-proposed-062000984.html

[Thrifty3000]

https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2020/Fairfax-Africa-Enters-Into-Automatic-Share-Purchase-Plan-and-Announces-Intention-to-Make-Normal-Course-Issuer-Bid-for-Subordinate-Voting-Shares/default.aspx

 

Looks like they're going to continue buying up 25% of the daily trading volume.

 

They repurchased 1,476,096 shares on the open market in the last 12 months for an average price of $6.18.

[peripatetic]

Painful yet amusing summary of FAH's former crown jewel: https://brucepackard.com/remorseless/