Fairfax 2021

[petec]

 

Once again,  if Fairfax wants to sell their shares in BB they are going to do it through a forward contract as Onex did

With Celestica (maintained voting majority ownership for years even thought the shares were hedged with forward contract) and Altius did this with Aurora. In those instances the underlying stock were at nose bleed levels (blackberry is not there) and both were large shareholders. You will not see this until earnings because they still own the shares. They are just hedged through the contract. The banks that  they do the deal with go into the market short the shares and charge a fee for the hedge. If they want out they can get out.  In Fairfax situation, they do not need the cash they have plenty at the sub level but it would freeze the capital at the level they hedged.

 

This makes a lot of sense, as a way to hedge risks waiting for a sale.

 

Meantime I am having some fun playing with the TAM on a revenue per car x installed fleet basis. I've decided it's almost certainly a 10-bagger from here ;)

[StubbleJumper]

 

Once again,  if Fairfax wants to sell their shares in BB they are going to do it through a forward contract as Onex did

With Celestica (maintained voting majority ownership for years even thought the shares were hedged with forward contract) and Altius did this with Aurora. In those instances the underlying stock were at nose bleed levels (blackberry is not there) and both were large shareholders. You will not see this until earnings because they still own the shares. They are just hedged through the contract. The banks that  they do the deal with go into the market short the shares and charge a fee for the hedge. If they want out they can get out.  In Fairfax situation, they do not need the cash they have plenty at the sub level but it would freeze the capital at the level they hedged.

 

 

It is possible that a forward contract might be used, but the use of derivatives does not exempt FFH from reporting:

 

https://www.osc.gov.on.ca/documents/en/Securities-Category5/csa_20100611_55-312_equity-monetization.pdf

 

Effectively, whether FFH uses direct sales or derivatives doesn't much matter, they must report.  So it basically boils down to the same problem in that either you find somebody to buy a large block of shares (or a large-sized forward contract) or you attempt to dribble out your shares over several trading session and hope that the reports of your insider dispositions don't spook the market.

 

With respect to BB not currently being at nosebleed levels, I'm not too sure what to say.  After a conversion of the debs, at today's market price, BB would have a market cap of US$8B+.  That's 4x BV, and 2.5x Total Assets.  That's about 200x this year's likely cash from ops.  It's trading on a wing and a prayer.  I recognize that there are outfits which trade at even stupider levels, but I haven't seen any compelling arithmetic that would lead me to believe that it's not at nosebleed levels.  I'd love to see some well conceived analysis that would suggest that BB is capable of pounding out $800m in annual earnings (ie, PE=10x) at some point in the near future.

 

I am a big fan of ending up on the right side of the greater-fool theory, but the key to succeeding on that is to have an exit strategy.  Hold forever doesn't look too compelling for BB shares.

 

 

SJ

 

[Dazel]

SJ,

 

Thanks I see that changed in 2010 (I am old) the Onex and Altius deals were before  2010. I would imagine there is aways ways to stick handle it...

 

Other options are to buy Puts and sell the stock short to hedge they could do both at the institutional level easily....they could use their Blackberry stock holdings to settle both down the road...they would NOT have to disclose these positions because they would be open trades-hedges.  They would of course settle out in the quarterly numbers but Fairfax would NOT be required to disclose the positions.

 

WSB says Blackberry is going to $100 though...and they have looked a lot smarter than Fairfax over the last several years! Lol!!!

 

 

[ourkid8]

I feel the price of $BB has now gotten ahead of itself.  I really like the long term prospects of the company but I am not sure if I should hold of just liquidate my position. Insider action: 

 

1. Roger lace sold out of his position (HW insider on the board)

2. Chief marketing officer of BB reduced their holdings by nearly 60%

3. CFO liquidated their position

[StevieV]

BTW, Is Fairfax actually precluded from selling its Blackberry stake because Prem is on the board? I know it would look weird but as far as I know board members can personally sell shares, so presumably their companies can too? And if they are precluded from selling shares, does the same apply to the converts? Because that would be a very nice way to reduce the stake if they can find a buyer. I am only asking hypothetically. My guess is the exit has to be a sale, possibly piecemeal.

 

 

No, FFH has no legal impediment to selling its shares.  There is, however, a sigalling risk when insiders are dumping their shares.  If you can dump them in one large block-trade at an agreed price and then fill out the regulatory filings to make the public announcement afterward, then it's not a problem for you.  If you cannot find a buyer for a large block, then you'd need to sell them on the market in small dribs and drabs over the course of a few months (it is a very large stake!).  Before you are even able to dump the majority of your position, you'll have had to file some insider transactions reports, which signals to the market that insiders believe that the price is too high.  In short, your favourable price could disappear because of your obligation to file.  On the other hand, if you were not a BB director, you could quietly dump your shares on the market over several trading sessions and your only need would be to eventually file a 13F a few months later...

 

 

SJ

 

If the WSB board is what is driving the share price (and that seems to be the case), I'm not sure the signaling risk is as great as it would normally be.  How many folks over there are buying because of Prem's involvement?  How many are going to sell because Prem is selling?  I know very little about the WSB subthread board, but my guess is zero.  If the stock starts to lose momentum because of Fairfax selling, maybe then.

 

Volume today and some recent days has been huge.  I think Fairfax could dump some shares if they like.

[StubbleJumper]

BTW, Is Fairfax actually precluded from selling its Blackberry stake because Prem is on the board? I know it would look weird but as far as I know board members can personally sell shares, so presumably their companies can too? And if they are precluded from selling shares, does the same apply to the converts? Because that would be a very nice way to reduce the stake if they can find a buyer. I am only asking hypothetically. My guess is the exit has to be a sale, possibly piecemeal.

 

 

No, FFH has no legal impediment to selling its shares.  There is, however, a sigalling risk when insiders are dumping their shares.  If you can dump them in one large block-trade at an agreed price and then fill out the regulatory filings to make the public announcement afterward, then it's not a problem for you.  If you cannot find a buyer for a large block, then you'd need to sell them on the market in small dribs and drabs over the course of a few months (it is a very large stake!).  Before you are even able to dump the majority of your position, you'll have had to file some insider transactions reports, which signals to the market that insiders believe that the price is too high.  In short, your favourable price could disappear because of your obligation to file.  On the other hand, if you were not a BB director, you could quietly dump your shares on the market over several trading sessions and your only need would be to eventually file a 13F a few months later...

 

 

SJ

 

If the WSB board is what is driving the share price (and that seems to be the case), I'm not sure the signaling risk is as great as it would normally be.  How many folks over there are buying because of Prem's involvement?  How many are going to sell because Prem is selling?  I know very little about the WSB subthread board, but my guess is zero.  If the stock starts to lose momentum because of Fairfax selling, maybe then.

 

Volume today and some recent days has been huge.  I think Fairfax could dump some shares if they like.

 

 

You might very well be right that the BB YOLO crowd wouldn't worry one bit about a long-term institutional insider beginning to dump shares.  I believe they are bit irrational, so I shouldn't discount the possibility that they might be so irrational that they wouldn't care about insiders' decisions!

 

 

SJ

[bearprowler6]

I feel the price of $BB has now gotten ahead of itself.  I really like the long term prospects of the company but I am not sure if I should hold of just liquidate my position. Insider action: 

 

1. Roger lace sold out of his position (HW insider on the board)

2. Chief marketing officer of BB reduced their holdings by nearly 60%

3. CFO liquidated their position

 

Weak hands! Continue to hold like Prem for the long term!

[ourkid8]

How about Roger Lace?  :)

 

I feel the price of $BB has now gotten ahead of itself.  I really like the long term prospects of the company but I am not sure if I should hold of just liquidate my position. Insider action: 

 

1. Roger lace sold out of his position (HW insider on the board)

2. Chief marketing officer of BB reduced their holdings by nearly 60%

3. CFO liquidated their position

 

Weak hands! Continue to hold like Prem for the long term!

[Dazel]

 

How did Gerry Schwartz (Onex-perhaps the greatest private equity investor of all time) hold Celestica shares during their Massive run up in 2000? Onex bought the company from IBM in 1996 for $500m. He knew exactly what it was worth and rode their rocket ship to almost the top. Onex did an equity monetization at that point....for a game changing gain for Onex in 2000.

 

How? Prem has to be thinking about this....the market is acting like he already sold with Fairfax stock falling 10% this week.

[Dazel]

https://www.theglobeandmail.com/report-on-business/onetime-tech-star-celestica-tanked-but-its-parent-still-got-rich-how-come-because-investors-dont-come-any-savvier-than-onex-czar-gerry-schwartz/article18140053/

[no_free_lunch]

I think the best way to invest in blackberry is via ffh.  At these level, the surge in BB stock is in no way priced in.  You are getting the upside from the past 4 months for free and in addition you have an option should it go higher.

[TwoCitiesCapital]

I think the best way to invest in blackberry is via ffh.  At these level, the surge in BB stock is in no way priced in.  You are getting the upside from the past 4 months for free and yet still have a free option should it go higher.

 

 

+1

[SafetyinNumbers]

I haven’t looked at Fairfax in over a decade but I’m getting intrigued.

 

Is there a good place to start for a newbie?

[no_free_lunch]

You have already started. Just work through the threads and ARs.

[Xerxes]

https://www.theglobeandmail.com/report-on-business/onetime-tech-star-celestica-tanked-but-its-parent-still-got-rich-how-come-because-investors-dont-come-any-savvier-than-onex-czar-gerry-schwartz/article18140053/

 

Dazel

That was a great read.

Thank you.

 

Although, this is from 20 years ago, if you have any opinion or insight on Onex today and that you would like to share, please do not be a stranger to the Onex thread.

[Xerxes]

With respect to BB not currently being at nosebleed levels, I'm not too sure what to say.  After a conversion of the debs, at today's market price, BB would have a market cap of US$8B+.  That's 4x BV, and 2.5x Total Assets.  That's about 200x this year's likely cash from ops.  It's trading on a wing and a prayer.  I recognize that there are outfits which trade at even stupider levels, but I haven't seen any compelling arithmetic that would lead me to believe that it's not at nosebleed levels.  I'd love to see some well conceived analysis that would suggest that BB is capable of pounding out $800m in annual earnings (ie, PE=10x) at some point in the near future.

 

even a well conceived analysis that would suggest that BB is capable of pounding outa $400 million earning with a 20X multiple slapped on with be ok as well :)

 

Sadly, i sold the shares that i bought @ $4CAD in March for $6CAD earlier in summer and bought IAC with it. Happy about IAC but should have used new capital.

I still have another set of BB shares that I had bought $10CAD two years prior.

[petec]

They’re roughly breakeven today. 400m in earnings probably needs 500m more in revenue. Give it take.

 

That’s 50m cars a year with $10 of BB software per car. Very possible, but also a LONG way from where they are now.

[Santayana]

We really have no idea what that number per car might look like a few years down the road.  What if in a world of self-driving cars they have something that they're getting $100/car for?  What if the technology ends up in Amazon's drones as well? 

 

Or, someone else comes along and eats their lunch, and they end up not being a meaningful part of the market at all.  But if they nail it the upside could be tremendous.

[ourkid8]

Amazon will only partner with another company if they feel the upside is tremendous. Look at their investment in Aurora, i am just waiting for the announcement when they will integrate Ivy as well.  Super exciting story and it is just starting. 

 

But if they nail it the upside could be tremendous.

[petec]

Anything’s possible. But that’s not a basis for valuing a company. It’s the basis for valuing an option. I agree BlackBerry has options.

 

100/car is at the absolute outer edge of IVY blue sky when you consider they’re targeting high teens. I think the bigger upside is finding a way to move QNX and/or IVY to a subscription model so they get say 10/car/year rather than just 10/car when it’s made.

[StubbleJumper]

They’re roughly breakeven today. 400m in earnings probably needs 500m more in revenue. Give it take.

 

That’s 50m cars a year with $10 of BB software per car. Very possible, but also a LONG way from where they are now.

 

 

That's the math.  But, to expand on that math, it's worth noting that all of the car manufacturers in the entire world only build about 70m cars per year, and maybe tack on another 20m commercial vehicles for a total of ~90m.  While one might reasonably anticipate that BB technology might find its way into the major North American, Japanese and European cars, I have serious reservations about the likelihood of the lower-end Chinese or Indian manufacturers actually paying to install BB tech into their cars.  So, you start with about 90m units, subtract off 30m for those produced in China and India and that leaves BB a potential market of about 60m units per year. 

 

If BB were to get their tech into 50m out of the ~60m cars produced in developed countries, that would be one hell of a good market penetration...

 

 

SJ

[Viking]

More positive press for Blackberry.

 

The Globe’s stars and dogs for the week

 

- https://www.theglobeandmail.com/investing/investment-ideas/article-the-globes-stars-and-dogs-for-the-week-139/

 

BlackBerry Ltd. (STAR)    $17.85+5.37 (43.03%)

 

Maybe it should be renamed BlackBerry In Motion. Shares in the company have been skyrocketing faster than the Waterloo housing market this year, almost doubling in value since the start of this year. There’s been a slew of good news of late, including a patent dispute settlement with Facebook and a partnership with Amazon to work on cloud-based vehicle software. But for now, it is stock market momentum that’s really got this former tech darling charged up. BlackBerry is back with a new kind of playbook – and, for a change, this one is getting rave reviews.

[no_free_lunch]

I don't know blackberry but with these platforms it's more than just the initial revenue.  There will be an app store, I wonder how that revenue split would work between auto, Amazon, blackberry.  The app store will be a way to target subscription revenue as well.  It's one way I can see the numbers making sense.

 

It is also possible that $20 per car number does go up as it is guaranteed there will be more and more sensors. For safety if nothing else. Just a question can blackberry grab proportional revenue?

 

I do think costs will be higher than we would like.  Strong traditional earnings may not emerge even if things go well. However if it pans out there is a very real possibility of a buyout.  While we may not agree with tech valuations they do provide these companies with options to purchase lower priced rivals or bolt ons and still have the numbers make sense to investors.

 

I still feel ffh is the way to go on this. If it falls who cares it wasn't priced in. If it success not only does nav go up but it could help ffh rerate.

 

Between this and digit I at least have some hope.  If the covid vaccine works I could see ATCO and fih moving up as well.  I don't see enormous downside and yet I have a  stock that could, with equity appreciation and rerating be a double. 

[Xerxes]

Staying in the realm of option value, as Petec stated:

 

Here is another one. Few years ago, who would have thought Roku would be anything in the media space in the midst of giants. Yet, precisely because of its size it was able to become the neutral platform that the media giants could be ok with for the last leg; so it triumphed because it became the Switzerland of its space. Blackberry, perhaps has a similar opportunity; John Chen has already indicated what they are doing is being the pipeline of data for the customers, with no economic interest to sell data or monetize it.

[chrispy]

I wish there was some level of certainty on this mystery short position / I wish Fairfax would actually stop shorting.