Fairfax Africa

[petec]

4 hours ago, EgonKuhn said:

Many thanks for this very detailed article @petec!

 

Unfortunately I bought in here at the end of March 2020, and been watching the disaster unfold ever since, using it as a lesson in humility regarding my own modest abilities.

 

Just to clarify a detail from your article: Helios (the asset manager) posts an annual loss of around USD 8 million, yet was carried on the books at a valuation of USD 104 million at the end of 2025? Is that a correct summary? Honestly that makes me worry about the potential gap between valuation and reality for the other assets...

 

It would have been interesting to see a peer comparison included in your article, for instance with "The Bidvest Group Limited" (BVT.ZA). While buying into that stock during the COVID lows would also have been a mistake, it at least held up reasonably well and paid out some dividends since then.

 

Hi!

 

At a very basic level yes the $8m and $104m numbers are right. However the $8m number is based on only one quarter, so it may be wrong. Also, it includes nothing for carry, which could be quite valuable.

 

I would not compare the valuation of Helios with the other assets for three reasons.

1. Helios can turn on a dime. One big fund, or one successful investment, could flip it to profitability. It is a very different animal to say Trone, a profitable medical devices distributor carried at 9.4x ebitda.
2. For the majority of the other businesses, we have third party investor validation of the valuations.
3. HFP have no real incentive to value Helios correctly. It is an intangible and it makes no practical difference whether it is carried at $0 or $50m or $100m. So long as they can defend the assumptions in the DCF, they probably don't spend all that much time on it. The other valuations, however, have to be defended and justified to LPs in a very different way.

Finally, the share price is 50% of book value even if you exclude Helios completely. So it really is a free option.

 

Peer comparison is a lovely idea but - done right - very time consuming!

 

Pete

 

 

[EgonKuhn]

Thanks @petec.

 

Perhaps I’m a bit hypersensitive due to past experiences. Without knowing the finer details, a 50% discount to book value doesn't seem all that far-fetched given the performance over the last decade. It’s all the better, that you’re shedding some light on this.

 

A peer comparison would indeed be a major undertaking. I took a look at South Africa a few years back, and Bidvest stood out to me as a company that "at least knows a bit about what it's doing", of course they are also at the mercy of major (macroeconomic) trends. Unfortunately I ended up trusting Fairfax’s expertise more than my own gut feeling in the March 2020 drawdown.