Fairfax 2021

[nwoodman]

Viking,

 

great post as always.  As doodling is so much more fun than reviewing reports,  I added in the regression to the mean curves for four years out on my 10,000ft view of Fairfax.  Four years is quite arbitrary, but I agree that Fairfax over the last couple of years have made more good decisions than bad.  This will be appreciated sooner or later.   While the weighing machine is a bit broken at the moment, the current prices offers an opportunity for returns that will vary somewhere between acceptable and stellar. 

 

 

One thing that does standout out is how inconsequential some of those earlier dips look in retrospect, yet many thousands of words were written.  

Edited September 23, 2021 by nwoodman

[petec]

9 hours ago, Viking said:

- Atlas - 20% growth (top and bottom line) likely coming the next 3-4 years

 

Rather more than 20%! 2024 EPS guide is about $2.50 based on already contracted business. 2020 EPS was $1.06.

 

Edit: I just realised you might have meant 20% per annum, not total. Sorry!

Edited September 23, 2021 by petec

[petec]

3 hours ago, nwoodman said:

One thing that does standout out is how inconsequential some of those earlier dips look in retrospect, yet many thousands of words were written

 

Yes!

[petec]

9 hours ago, glider3834 said:

just noticed this updated SEC filing from 17 Sep in connection with Fairfax issuing 2031 Notes https://www.sec.gov/Archives/edgar/data/0000915191/000110465921116747/tm2127687-3_f10.htm#tDOTB

 

Factoring in adjustments below, I estimate BVPS at 30 June increases to US$545.51 per share ($14,142 Common equity as adjusted below/25.924 mils shares at 30 June) - I suspect most of this is coming from Eurolife consolidation which is adjusted into this number along with Riverstone Barbados & Brit sales. 

 

What looks good are the debt/capital ratios which all showing significant improvement. Net Debt drops by $924mil with Adjusted 30 June figures.

(Sale of Brit 375 plus sale of Riverstone of 700 less purchase of Eurolife 142 equals 933 which looks close to this number) 

 

 

 

 

 

 

 

 

Good find & good to see.

 

$545 plus $46 to come from Digit plus ?$20+ in excess of fair over carrying - we are probably over $600 per share in q3, even allowing for some hurricane losses. And that's not including Fairfax's share of the excess of fair over carrying at Fairfax India.

[nwoodman]

14 minutes ago, petec said:

 

Yes!

Edit approved

[nwoodman]

As a follow up to the discussion on relative undervaluation I am interested in everyone’s expectations on:

 

1. Prem weighs into another pricing anomaly and buys in his personal account given this is the best value since the lows in 2020

2. Fairfax increases their TRS position 

3. Buys back shares in the open market

4. Simply has used funds raised to deleverage/de-risks and sighs relief, no criticism intended  

5. All is good and is share price agnostic +/-20% and playing the long game, wake them when cash is truly rolling in from investees

Edited September 23, 2021 by nwoodman

[StubbleJumper]

51 minutes ago, nwoodman said:

As a follow up to the discussion on relative undervaluation I am interested in everyone’s expectations on:

 

1. Prem weighs into another pricing anomaly and buys in his personal account given this is the best value since the lows in 2020

2. Fairfax increases their TRS position 

3. Buys back shares in the open market

4. Simply has used funds raised to deleverage/de-risks and sighs relief, no criticism intended  

5. All is good and is share price agnostic +/-20% and playing the long game, wake them when cash is truly rolling in from investees

 

 

1.  Does Prem personally have any dry powder remaining?  When he announced his personal purchases last year, I posed the question on this board about where he found the US$150m to do so.  Was it loose change that he dug out of his sofa, or did he borrow the money and use the multiple voting shares as collateral.  Turning to this year, do you figure he still has more loose change in his sofa, or that he'd be keen to borrow another 9-digits of money?  I'm guessing no, but then again, I was a bit surprised that he scraped together the US$150m last year.

 

2.  The TRS surprised me even more than Prem's personal purchase.  If the underlying stock price moves in your favour, they are great, but if it moves against you, you need to periodically pony up some cash.  In that context, having exposure to 1 million shares is a manageable risk, but I question where Prem and the Jen Allen would place the ceiling.  So, if you have exposure to, say 3 million shares through a TRS, and the market goes against you by $50 (like it has done over the past four months), you need to find US$150m of cash for your counterparty.  So, what's FFH's ceiling on that kind of cashflow risk?  Given the value of the underlying, at what point can they continue to credibly describe it as a buy-back measure, and at what point does it become plainly obvious that it's pure stock price speculation (ie, TRS of a couple million shares is at least a plausible buyback measure because we're only talking about a notional value of US$800m, but once you get to 3 or 4 million shares, it's pretty clear that there's no medium-term prospect of actually making that volume of repurchases).

 

3.  It is almost certain that there will be some volume of open market purchases, but how much?  FFH is borrowing money from OMERS at 9% using Brit as collateral sold a portion of Brit to OMERS, to raise cash for the holdco, so is that really indicative of being in a position to make meaningful repurchases?  Clearly you can borrow at 9%, buyback shares on the open market at currently prevailing prices, and improve continuing shareholder wealth.  But, do you really fund large repurchases by putting your assets in hock selling portions of your assets?  I'm guessing that there will only be small-ish repurchases (ie, ~US$100m), but I've been surprised by FFH before.

 

4.  De-leveraging would be nice, but I'll believe it when I see it.  When was the last time that we saw FFH's nominal debt level decline in any meaningful way (unless you consider borrowing money from OMERS selling a portion of an asset to OMERS to repay the revolver to be a debt repayment)?  My guess is that they use the holdco cash to fund the holdco's operations for a couple of years, and allow organic growth to moderate their relative indebtedness.  If they can grow BV by 20% or 30% over the next two years, debt ratios will look a great deal more reasonable (they are already much better than they were 12 months ago).

 

5.  I hope that's what they do.  But, option #6, which you have not written, would be another acquisition.  Prem has been a serial acquirer for the past 20 or so years.  Whenever there's any financial capacity, he seems to find something to buy.  My fear is that this past habit will continue to play out.

 

 

 

SJ

[nwoodman]

33 minutes ago, StubbleJumper said:

But, option #6, which you have not written, would be another acquisition.  Prem has been a serial acquirer for the past 20 or so years.  Whenever there's any financial capacity, he seems to find something to buy.  My fear is that this past habit will continue to play out.

 

SJ, you keep us all grounded.  Empire expansion was an error of omission from the list  

 

Do you believe that their allocation ability is getting better?  The warrant plays and picking up some Berkshire cast offs like Digit, Bank of Ireland, and Sokol (Atlas) does it make them seem better allocators?  

 

BoI they managed to in and out without feeling any obligation to Ritchie Boucher, unlike John Chen at Blackberry.   
 

Obviously Eurobank was a function of the BoI endorphin rush, it will work out OK but it has been some years in the making and it had the real potential to be a clusterfuck.  Hopefully will turn out OK

 

Digit, great work so far.  Especially to snare it after Kamesh pitched it hard to Ajit/Berkshire and they declined.

 

Atlas, I think this is their most astute investment to date, but by no means a tribute to Prem’s acumen.  Sokol is the real deal, and deserves to end up a Billionaire hopefully he adds 5-10 Bn or more to Fairfax on the way thru.  Who could have guessed that shipping would have had the pricing power it does now?  Ok, Sokel who bagged the priorb senior management for not going hard some years ago and made the necessary changes

 

I am betting whatever torturous/fortuitous route they got to the present situation, it will stand them in good stead going forwards. Prem”s seat at the table for deals, his drive to get the best of breed managers, and his dedication to his company are real.

 

 

[Viking]

5 hours ago, petec said:

 

Rather more than 20%! 2024 EPS guide is about $2.50 based on already contracted business. 2020 EPS was $1.06.

 

Edit: I just realised you might have meant 20% per annum, not total. Sorry!

Petec, yes i am thinking Atlas can deliver growth of 20% per year the next couple of years. It really is amazing what this company has done over the past 5 quarters. Getting through the worst of the pandemic with minimal impact to financial results. And then the hard pivot to new builds on a simply massive scale. Wow!
 

This is also Fairfax’s largest equity holding by far worth about $2 billion and close to 20% of their equity portfolio. If it compounds in value at anything close to 20% per year moving forward the impact on Fairfax results will be meaningful.

And the fact that the #2 shareholder of Atlas just purchased $40 million in shares at about the current share price suggests the valuation is still cheap. I think the Washington family also have owned shares in Seaspan since the company was founded; they understand the shipping industry as well as anyone. And they are long term holders. 

 

[StubbleJumper]

20 minutes ago, nwoodman said:

 

SJ, you keep us all grounded.  Empire expansion was an error of omission from the list  

 

Do you believe that their allocation ability is getting better?  The warrant plays and picking up some Berkshire cast offs like Digit, Bank of Ireland, and Sokol (Atlas) does it make them seem better allocators?  

 

BoI they managed to in and out without feeling any obligation to Ritchie Boucher, unlike John Chen at Blackberry.   
 

Obviously Eurobank was a function of the BoI endorphin rush, it will work out OK but it has been some years in the making and it had the real potential to be a clusterfuck.  Hopefully will turn out OK

 

Digit, great work so far.  Especially to snare it after Kamesh pitched it hard to Ajit/Berkshire and they declined.

 

Atlas, I think this is their most astute investment to date, but by no means a tribute to Prem’s acumen.  Sokol is the real deal, and deserves to end up a Billionaire hopefully he adds 5-10 Bn or more to Fairfax on the way thru.  Who could have guessed that shipping would have had the pricing power it does now?  Ok, Sokel who bagged the priorb senior management for not going hard some years ago and made the necessary changes

 

I am betting whatever torturous/fortuitous route they got to the present situation, it will stand them in good stead going forwards. Prem”s seat at the table for deals, his drive to get the best of breed managers, and his dedication to his company are real.

 

 

 

 

Are they getting better at it?  Hard to say.  FFH's purchases have always been a mixture of strikeouts and homeruns.  As you noted, Atlas and Digit have worked out wonderfully well so far, but other purchases such as the Port of Churchill and Toys R Us not so much.  The good news is that the recent flops have been smaller than the homeruns, and FFH seems to have at least done a good job of managing the downside once it realized that those recent acquisitions were flops.

 

The persistence of the Blackberry position is perplexing.  As you noted, FFH didn't hesitate to exit the Bank of Ireland position and they've sold plenty of other assets in the past.  But, with BB it seems like either Prem has got religion about the company, or maybe John Chen has some photos of Prem in a compromising position...

 

 

SJ

[petec]

1 hour ago, Viking said:

Petec, yes i am thinking Atlas can deliver growth of 20% per year the next couple of years. It really is amazing what this company has done over the past 5 quarters. Getting through the worst of the pandemic with minimal impact to financial results. And then the hard pivot to new builds on a simply massive scale. Wow!
 

This is also Fairfax’s largest equity holding by far worth about $2 billion and close to 20% of their equity portfolio. If it compounds in value at anything close to 20% per year moving forward the impact on Fairfax results will be meaningful.

And the fact that the #2 shareholder of Atlas just purchased $40 million in shares at about the current share price suggests the valuation is still cheap. I think the Washington family also have owned shares in Seaspan since the company was founded; they understand the shipping industry as well as anyone. And they are long term holders. 

 

Agreed. I own a fat slug of it and think it is very cheap on 6x 2024 contracted eps with the possibility of more to come and a superb management team allocating capital. I tip my hat to Prem - it’s going to be a superb investment. 

[petec]

54 minutes ago, StubbleJumper said:

The persistence of the Blackberry position is perplexing.  As you noted, FFH didn't hesitate to exit the Bank of Ireland position and they've sold plenty of other assets in the past.  But, with BB it seems like either Prem has got religion about the company, or maybe John Chen has some photos of Prem in a compromising position...

Ha ha!

 

Just listened to the Blackberry call and came away with two thoughts. 
 

The first is that with Blackberry deep in negs on the sale of the patent portfolio (price agreed, DD complete, some details to be hammered out, 80% chance it closes in the next quarter) is it possible that Prem as a board member is inside and can’t sell?

 

Second, while it might well have been sensible to sell BB at many points in the last, I’m not sure it is now. The company think they have closed the product gap in cybersecurity and they plan to use some of the cash from the sale of the patent portfolio to accelerate growth in that business. QNX is getting design wins almost by the day and revenues will ramp when the chip shortage is solved and auto manufacturers can produce. And there’s an intriguing option being built in the form of Ivy. Given Fairfax’s average cost is the lowest it’s ever been (assuming they convert the debt), my view is they should give BB another 18 months to see if any of these shots land on goal. 
 

I am now going to pour a glass of wine and brace myself for the inevitable torrent of abuse

[Viking]

2 hours ago, StubbleJumper said:

 

 

Are they getting better at it?  Hard to say.  FFH's purchases have always been a mixture of strikeouts and homeruns.  As you noted, Atlas and Digit have worked out wonderfully well so far, but other purchases such as the Port of Churchill and Toys R Us not so much.  The good news is that the recent flops have been smaller than the homeruns, and FFH seems to have at least done a good job of managing the downside once it realized that those recent acquisitions were flops.

 

The persistence of the Blackberry position is perplexing.  As you noted, FFH didn't hesitate to exit the Bank of Ireland position and they've sold plenty of other assets in the past.  But, with BB it seems like either Prem has got religion about the company, or maybe John Chen has some photos of Prem in a compromising position...

 

 

SJ

Stubblejumper, my read is Fairfax has has one catastrophic bad investment that cost past shareholders something in the range of $4 billion - their shorting strategy. 2020 saw the last hit as they finally closed out their position. This ‘position’ resulted in Fairfax posting pretty terrible investment results for the 7-8 years to Dec 31 2020 (in agreggate). And this was the direct cause of minimal growth in book value over the same time frame. And, of course, the stock price has significantly underperformed as a result. 
 

If we take the losses from shorting out of the equation i am not sure their investment results would come in as terrible - perhaps a little below average. We now know the shorting issue is no longer an issue (for those buying the stock today at US$420) so we can take that issue off the table.

 

But I think there is much more change going on in Fairfax with how they are managing and looking at their portfolio of equity investments. This change has been playing out slowly the past couple of years.

 

As an aside, I wonder if Paul Rivette leaving was not also part of the change (as it doesn’t look to me like he has ‘retired’ to spend time with family :-). I am not trying to bad mouth Paul; but i wonder if it was not a ‘fit’ issue in terms of where Fairfax wanted to go with its investments in the future - Fairfax simply wanting to move in a direction that Paul was not happy about. (As an example, I think Fairfax Africa was Paul’s idea initially and then his responsibility to execute - perhaps just one example of old Fairfax and we now see new Fairfax with Fairfax Africa merged with Helios.) 

 

So , other than not shorting, what else has happened at Fairfax specific to their equity holdings? 

 

Partnering with strong management teams looks to be a much more important criteria when making new investments. More recent purchases, like Atlas and Stelco, have come with strong management teams. And the results have been stellar so hopefully this gets hard wired at Fairfax.

 

Fairfax has made another important changes in recent years in how they manage their investment portfolio. The many poor investments made pre 2019 have been largely addressed. APR and Fairfax Africa are two obvious examples here (merged with strong external management teams in Atlas and Helios). They have also done a stellar job of getting their equity holdings positioned to succeed moving forward so some strong companies at acquisition are in an even better situation today. I am thinking of Dexterra and their reverse takeover of Horizon North as an example here. Fairfax’s fix for Eurobank (merger with Grivalia) is looking very good. Eurobank already had good management; it needed a balance sheet fix. Fairfax India provides a great example of how 10 or 15 seemingly small decisions over 5 or so years adds up to create a very strong collection of assets. 
 

Once Andy Bernard was put in charge of all the insurance companies the underwriting results of the insurance companies improved dramatically over the next decade - it took 5 or 6 years for the changes Andy implemented to consistently come through in the operating results of the various insurance subs.
 

I am wondering if the same thing has not happened on the equity investment side of the business - it looks to me like a new person has been in charge of the equity investments for the past 3 or 4 years and they are slowly revamping how the collection of assets in the portfolio are selected (new purchases) and managed (existing holdings). Lead by strong external management teams. Decentralized operations (minimal involvement from Fairfax HO). Set them up to succeed. Hold them accountable to perform (be profitable and fund their own growth). And it looks to me like they are hitting the ball out of the park. I just don’t know who that person is (my guess is it is a committee). 
 

 

pivot in terms of their investment portfolio.

 

Edited September 23, 2021 by Viking

[StubbleJumper]

2 hours ago, petec said:

 

I am now going to pour a glass of wine and brace myself for the inevitable torrent of abuse

 

No torrent of abuse is headed your way.  Your view is as legitimate as any other.

 

 

Quote

The first is that with Blackberry deep in negs on the sale of the patent portfolio (price agreed, DD complete, some details to be hammered out, 80% chance it closes in the next quarter) is it possible that Prem as a board member is inside and can’t sell?

 

That certainly could be a short-term issue.  But, BB's stock price has been high enough on multiple occasions since January that FFH could have exited the position at break-even or perhaps better.  My take is that Prem could have resigned from the board in January or February and liquidated FFH's position a few months later if that's what he wanted to do.  The fact that it didn't happen suggests to me that he didn't actually want to dump the BB position.

 

Quote

Second, while it might well have been sensible to sell BB at many points in the last, I’m not sure it is now. The company think they have closed the product gap in cybersecurity and they plan to use some of the cash from the sale of the patent portfolio to accelerate growth in that business. QNX is getting design wins almost by the day and revenues will ramp when the chip shortage is solved and auto manufacturers can produce. And there’s an intriguing option being built in the form of Ivy. Given Fairfax’s average cost is the lowest it’s ever been (assuming they convert the debt), my view is they should give BB another 18 months to see if any of these shots land on goal. 

 

 

Never say never, there's always a possibility that they turn things around and earn enough money to justify the current US$6 billion market cap.  FFH's position is worth, what, about US$1.2 billion today?  Give them another 18 months and we can tack on another $175m of opportunity cost if they don't turn things around.  If they do turn things around, is a market cap of $8b or $9b even plausible?  So far, I haven't seen any compelling arithmetic to get me there.  But, maybe there's an upside that I am just unable to see.

 

 

SJ

[petec]

2 hours ago, Viking said:

Stubblejumper, my read is Fairfax has has one catastrophic bad investment that cost past shareholders something in the range of $4 billion - their shorting strategy. 2020 saw the last hit as they finally closed out their position. This ‘position’ resulted in Fairfax posting pretty terrible investment results for the 7-8 years to Dec 31 2020 (in agreggate). And this was the direct cause of minimal growth in book value over the same time frame. And, of course, the stock price has significantly underperformed as a result. 
 

If we take the losses from shorting out of the equation i am not sure their investment results would come in as terrible - perhaps a little below average. We now know the shorting issue is no longer an issue (for those buying the stock today at US$420) so we can take that issue off the table.

 

But I think there is much more change going on in Fairfax with how they are managing and looking at their portfolio of equity investments. This change has been playing out slowly the past couple of years.

 

As an aside, I wonder if Paul Rivette leaving was not also part of the change (as it doesn’t look to me like he has ‘retired’ to spend time with family :-). I am not trying to bad mouth Paul; but i wonder if it was not a ‘fit’ issue in terms of where Fairfax wanted to go with its investments in the future - Fairfax simply wanting to move in a direction that Paul was not happy about. (As an example, I think Fairfax Africa was Paul’s idea initially and then his responsibility to execute - perhaps just one example of old Fairfax and we now see new Fairfax with Fairfax Africa merged with Helios.) 

 

So , other than not shorting, what else has happened at Fairfax specific to their equity holdings? 

 

Partnering with strong management teams looks to be a much more important criteria when making new investments. More recent purchases, like Atlas and Stelco, have come with strong management teams. And the results have been stellar so hopefully this gets hard wired at Fairfax.

 

Fairfax has made another important changes in recent years in how they manage their investment portfolio. The many poor investments made pre 2019 have been largely addressed. APR and Fairfax Africa are two obvious examples here (merged with strong external management teams in Atlas and Helios). They have also done a stellar job of getting their equity holdings positioned to succeed moving forward so some strong companies at acquisition are in an even better situation today. I am thinking of Dexterra and their reverse takeover of Horizon North as an example here. Fairfax’s fix for Eurobank (merger with Grivalia) is looking very good. Eurobank already had good management; it needed a balance sheet fix. Fairfax India provides a great example of how 10 or 15 seemingly small decisions over 5 or so years adds up to create a very strong collection of assets. 
 

Once Andy Bernard was put in charge of all the insurance companies the underwriting results of the insurance companies improved dramatically over the next decade - it took 5 or 6 years for the changes Andy implemented to consistently come through in the operating results of the various insurance subs.
 

I am wondering if the same thing has not happened on the equity investment side of the business - it looks to me like a new person has been in charge of the equity investments for the past 3 or 4 years and they are slowly revamping how the collection of assets in the portfolio are selected (new purchases) and managed (existing holdings). Lead by strong external management teams. Decentralized operations (minimal involvement from Fairfax HO). Set them up to succeed. Hold them accountable to perform (be profitable and fund their own growth). And it looks to me like they are hitting the ball out of the park. I just don’t know who that person is (my guess is it is a committee). 
 

 

pivot in terms of their investment portfolio.

 

I’m 99% sure that it’s Prem. But he has gone back to basics and is more focussed than he was. 

[Xerxes]

23 hours ago, Viking said:

KPO, a solid case can be made that shares are much ‘cheaper’ today than when Prem bought in June 2020. 
 

Fairfax stock price: Prem’s = US$308; today = $413; increase = +$105

Book value March 31 ‘20 = $422; Q2 ‘21 = $540; BV increase = +$118

 

So just looking at BV it kind of looks close (stock is just as undervalued today as it was when Prem bought). 

 

 

Perhaps cheaper or as undervalued today based on the BV metrics.

 

It is just that he bought it at "distress" level when BV (ie. the anchor of the relative valuation) was artificially depressed.

 

Today, the BV does not represent a distress value as its related ingredients have recovered. So it seems to me that it was definitely cheaper from absolute AND relative point of view when he bought it, once you 'normalize' that April-July 2020 BV to remove the impact of meteor hitting the economy. 

 

 

[glider3834]

8 hours ago, petec said:

Ha ha!

 

Just listened to the Blackberry call and came away with two thoughts. 
 

The first is that with Blackberry deep in negs on the sale of the patent portfolio (price agreed, DD complete, some details to be hammered out, 80% chance it closes in the next quarter) is it possible that Prem as a board member is inside and can’t sell?

 

Second, while it might well have been sensible to sell BB at many points in the last, I’m not sure it is now. The company think they have closed the product gap in cybersecurity and they plan to use some of the cash from the sale of the patent portfolio to accelerate growth in that business. QNX is getting design wins almost by the day and revenues will ramp when the chip shortage is solved and auto manufacturers can produce. And there’s an intriguing option being built in the form of Ivy. Given Fairfax’s average cost is the lowest it’s ever been (assuming they convert the debt), my view is they should give BB another 18 months to see if any of these shots land on goal. 
 

I am now going to pour a glass of wine and brace myself for the inevitable torrent of abuse

All good points petec - I just listened to the call too as well

 

Here is interesting background on Ivy & would recommend reading Frost & Sullivan paper as well  https://www.autofutures.tv/2021/07/13/why-blackberry-qnx-is-in-the-ivy-league-of-cross-industry-platforms-grant-courville-vp-of-product-strategy/

 

I agree that Fairfax should hold BB but I see as a higher risk play with a lot of goodwill built in - it also has this asymmetrical risk/reward aspect to it & Fairfax have a habit of liking these sorts of bets (like the GFC CDS short bet that worked & the deflation bet that didn't). Its not a strategic hold they have admitted that on conference calls, Prem tried to sell it in Q1 but couldn't for legal reasons, they obviously have a price target in mind & its not $10-$11.

 

Going back to Ivy & excuse my ramble. If Ivy becomes the dominant digital ecosystem for automotive/smart cities  with majority of car manufacturers and car users (eventually as new intelligent connected vehicles are sold) utilising this data platform - - and every time an app is downloaded  - like Car iQ (digital wallet) or a battery efficiency management app or service sold (car insurance) or payment made (from car through a bank) using Ivy platform then Blackberry takes a cut each time - you can start to visualise how massive Ivy could become. First mover advantage is important, if Ivy becomes dominant software data platform in connected vehicles/smart cities they will be hard to displace (like Android or iOS) & all the apps will be built on there - they will build a defensible moat & Blackberry could be a very different & more valuable company.

 

At the moment Ivy is still a blank canvas, use case still needs to be developed and proven - early version being released in October. The use case for Ivy will only be realised through the building process & a lot more apps will need to be built - this is really the advantage of teaming up with AWS developer community.

 

I agree petec that if Fairfax sticks around with Blackberry at least for the next 12 mths we will have a lot more visiblity around the potential for the business - of course if they get a great price tomorrow like the Q1 pop then I am sure they will take it - lets see anyway 

 

There is another side to Blackberry - now I am a value investor at heart but bear with me Blackberry is a meme stock and it pains me to say but people want to own it for that reason - its a social media stock - meme ETFs are now also a thing. Now I am not suggesting Fairfax should continue to hold it for that reason but lets put our 'trader' hat here - they have to consider that as a 'meme stock' you have the potential for really skewed stock price returns & this higher volatility could potentially play into Fairfax's hands - it almost did in Q1! For example, Blackberry apparently had the highest sentiment rating on WSB today https://swaggystocks.com/dashboard/wallstreetbets/ticker-sentiment & 40 mil shares traded versus 10 mil avg  & share price rose over 10% on a pretty small revenue beat IMO. So there is other 'meme stock' aspect to it, now if Blackberry actually can also deliver tangible results  (from Ivy,Cyber) then you potentially could get a very skewed return outcome. Will the meme stock craze end - well I thought it would earlier this year - but it hasn't and maybe its because of bigger trends at play - social media/community growth, retail investor growth, prevalence now of free trading etc 

 

 

Edited September 24, 2021 by glider3834

[Xerxes]

For what is worth 

 

BlackBerry now a security software company — CEO explains the new vision (cnbc.com) 

[glider3834]

8 hours ago, petec said:

The first is that with Blackberry deep in negs on the sale of the patent portfolio (price agreed, DD complete, some details to be hammered out, 80% chance it closes in the next quarter) is it possible that Prem as a board member is inside and can’t sell?

thats an interesting point petec - JC said in CC they have agreed on the price, so assuming this is also discussed at Board level (& I can't see why it wouldn't be) then in that situation Prem would know what it is - the price would probably be material non-public information IMO & regardless of the 'quiet periods' that Blackberry has - if Prem is aware of the price then I think that would prevent Fairfax trading their position until the negotiation done & deal announced.

Edited September 24, 2021 by glider3834

[Viking]

2 hours ago, Xerxes said:

 

Perhaps cheaper or as undervalued today based on the BV metrics.

 

It is just that he bought it at "distress" level when BV (ie. the anchor of the relative valuation) was artificially depressed.

 

Today, the BV does not represent a distress value as its related ingredients have recovered. So it seems to me that it was definitely cheaper from absolute AND relative point of view when he bought it, once you 'normalize' that April-July 2020 BV to remove the impact of meteor hitting the economy. 

 

 

Xerxes, at the time Prem bought shares (June 2020) there was NO visibility on vaccine’s: efficacy level? When they would be approved by FDA? When they would be available for the public? So it was pretty much impossible to forecast economic growth moving forward. We all saw the shit show that played out in countries like Italy and Iran (or China). Lock downs were the order of the day.
 

In Oct 2020 Fairfax was trading under US$270 a share; well below the price level Prem had bought shares at. It was not until November that we got the crazy good news from Pfizer and Moderna. And then ‘value’ stocks (Fairfax and its equity holdings) rocked - the reopening trade was born.

 

When Prem bought Fairfax in June 2020 you have to value Fairfax with the information available at that time. And, yes, you value Fairfax today with what is KNOWN today; and we know we have vaccines that are very successful in combatting the virus. So Fairfax’s current business should be valued much, much higher. And its growth potential is MUCH higher today. Given what was known at the time of purchase (then and now) i think Fairfax is much cheaper at todays prices  

Edited September 24, 2021 by Viking

[glider3834]

8 hours ago, StubbleJumper said:

Never say never, there's always a possibility that they turn things around and earn enough money to justify the current US$6 billion market cap.  FFH's position is worth, what, about US$1.2 billion today?  Give them another 18 months and we can tack on another $175m of opportunity cost if they don't turn things around.  If they do turn things around, is a market cap of $8b or $9b even plausible?  So far, I haven't seen any compelling arithmetic to get me there.  But, maybe there's an upside that I am just unable to see.

I agree SJ - BB is not a buy when you do the numbers on it & probably deserves to be reduced at least to a smaller position for Fairfax but maybe they see greater value for reasons which are not in reported numbers (patent deal, Ivy potential, wins in Cyber,iOT) or maybe Fairfax are locked out from selling (due to patent negotiation)

Edited September 24, 2021 by glider3834

[Viking]

2 hours ago, glider3834 said:

All good points petec - I just listened to the call too as well

 

Here is interesting background on Ivy & would recommend reading Frost & Sullivan paper as well  https://www.autofutures.tv/2021/07/13/why-blackberry-qnx-is-in-the-ivy-league-of-cross-industry-platforms-grant-courville-vp-of-product-strategy/

 

I agree that Fairfax should hold BB but I see as a higher risk play with a lot of goodwill built in - it also has this asymmetrical risk/reward aspect to it & Fairfax have a habit of liking these sorts of bets (like the GFC CDS short bet that worked & the deflation bet that didn't). Its not a strategic hold they have admitted that on conference calls, Prem tried to sell it in Q1 but couldn't for legal reasons, they obviously have a price target in mind & its not $10-$11.

 

Going back to Ivy & excuse my ramble. If Ivy becomes the dominant digital ecosystem for automotive/smart cities  with majority of car manufacturers and car users (eventually as new intelligent connected vehicles are sold) utilising this data platform - - and every time an app is downloaded  - like Car iQ (digital wallet) or a battery efficiency management app or service sold (car insurance) or payment made (from car through a bank) using Ivy platform then Blackberry takes a cut each time - you can start to visualise how massive Ivy could become. First mover advantage is important, if Ivy becomes dominant software data platform in connected vehicles/smart cities they will be hard to displace (like Android or iOS) & all the apps will be built on there - they will build a defensible moat & Blackberry could be a very different & more valuable company.

 

At the moment Ivy is still a blank canvas, use case still needs to be developed and proven - early version being released in October. The use case for Ivy will only be realised through the building process & a lot more apps will need to be built - this is really the advantage of teaming up with AWS developer community.

 

I agree petec that if Fairfax sticks around with Blackberry at least for the next 12 mths we will have a lot more visiblity around the potential for the business - of course if they get a great price tomorrow like the Q1 pop then I am sure they will take it - lets see anyway 

 

There is another side to Blackberry - now I am a value investor at heart but bear with me Blackberry is a meme stock and it pains me to say but people want to own it for that reason - its a social media stock - meme ETFs are now also a thing. Now I am not suggesting Fairfax should continue to hold it for that reason but lets put our 'trader' hat here - they have to consider that as a 'meme stock' you have the potential for really skewed stock price returns & this higher volatility could potentially play into Fairfax's hands - it almost did in Q1! For example, Blackberry apparently had the highest sentiment rating on WSB today https://swaggystocks.com/dashboard/wallstreetbets/ticker-sentiment & 40 mil shares traded versus 10 mil avg  & share price rose over 10% on a pretty small revenue beat IMO. So there is other 'meme stock' aspect to it, now if Blackberry actually can also deliver tangible results  (from Ivy,Cyber) then you potentially could get a very skewed return outcome. Will the meme stock craze end - well I thought it would earlier this year - but it hasn't and maybe its because of bigger trends at play - social media/community growth, retail investor growth, prevalence now of free trading etc 

 

 

Blackberry is in the sweet spot right now in so many verticals.

1.) pending patent sale. How much? No idea. Could be big. Or not. Could close. Or not.

2.) are electric vehicles a big deal moving forward? I think so. Blackberry is aligned with 24 or 25 EV manufacturers (‘working’ on the 25th). Is this a big deal? No idea. But it could be.

3.) Is the car as an electronic device important? Is software to manage the information and use cases of a car as an electronic device valuable? Hello Ivy. Probably very valuable. But not sure.

4.) is cybersecurity important? I think so. How important? Super duper important. What inning are we in? Two? 
 

I have no idea what Blackberry is worth today. I do know that it is doing business in many crazy important verticals. That are in the very early innings of their life cycle. All companies in these verticals are valued at nosebleed levels; they are valued at future potential and Blackberry has that in spades right now. 
 

What i don’t understand is why someone has not taken them out yet.

 

One of my concerns with Blackberry is if Prem wants to see it stay Canadian (and the easiest way to make that happen is to keep it under Fairfax control). 
 

Or perhaps there are national security issues. If so perhaps the plan is to sell it in digestible pieces starting with the patent portfolio. 
 

Bottom line, if they start to get more traction (growth) with EV, Ivy and cyber the stock will look cheap at US$10. 
 

Does anyone know what the rumoured selling price is for the patent portfolio that was mentioned on the call? 
 

PS: i apologize if i am sounding like a Blackberry bull… it is happening by accident

Edited September 24, 2021 by Viking

[glider3834]

40 minutes ago, Viking said:

Blackberry is in the sweet spot right now in so many verticals.

1.) pending patent sale. How much? No idea. Could be big. Or not. Could close. Or not.

2.) are electric vehicles a big deal moving forward? I think so. Blackberry is aligned with 24 or 25 EV manufacturers (‘working’ on the 25th). Is this a big deal? No idea. But it could be.

3.) Is the car as an electronic device important? Is software to manage the information and use cases of a car as an electronic device valuable? Hello Ivy. Probably very valuable. But not sure.

4.) is cybersecurity important? I think so. How important? Super duper important. What inning are we in? Two? 
 

I have no idea what Blackberry is worth today. I do know that it is doing business in many crazy important verticals. That are in the very early innings of their life cycle. All companies in these verticals are valued at nosebleed levels; they are valued at future potential and Blackberry has that in spades right now. 
 

What i don’t understand is why someone has not taken them out yet.

 

One of my concerns with Blackberry is if Prem wants to see it stay Canadian (and the easiest way to make that happen is to keep it under Fairfax control). 
 

Or perhaps there are national security issues. If so perhaps the plan is to sell it in digestible pieces starting with the patent portfolio. 
 

Bottom line, if they start to get more traction (growth) with EV, Ivy and cyber the stock will look cheap at US$10. 
 

Does anyone know what the rumoured selling price is for the patent portfolio that was mentioned on the call? 
 

PS: i apologize if i am sounding like a Blackberry bull… it is happening by accident

yes they wouldn't disclose the price viking with negotiation ongoing - I guess we have to put Blackberry in the portfolio context of Fairfax's other stuff they own - if all Fairfax's holdings looked like Blackberry (with more of the valuation being placed on future cash flows from untested business like Ivy) I would be worried , but having Blackberry in there gives Fairfax this business with disruptive potential (Ivy),  future Cyber/iOT growth plus potentially decent payoff with patents - if everything comes together over the next 12-24 mths it could work out well.

Edited September 24, 2021 by glider3834

[nwoodman]

There has to be some rotation out of China as part of this.  Go you good thing  

 

World-Beating Rally Pushes India’s Sensex to Record 60,000-Mark - Bloomberg

 

 

The blistering rally has brought valuations back at the center of the debate over how far Indian stocks can go from here. The Nifty is trading at close to 23 times its estimated 12-month earnings, well above its five-year average of about 18 times, and much higher than the MSCI Emerging Market Index’s multiple of 13. Risks are also rising for the economy; a retreat for the Nifty 50 Index would reduce gross domestic product by 1.4% in the same quarter of the shock and by 3.8% over the following year, Ankur Shukla, an economist with Bloomberg Economics, wrote in a recent note. 

Edited September 24, 2021 by nwoodman

[petec]

4 hours ago, Viking said:

Blackberry is in the sweet spot right now in so many verticals.

1.) pending patent sale. How much? No idea. Could be big. Or not. Could close. Or not.

2.) are electric vehicles a big deal moving forward? I think so. Blackberry is aligned with 24 or 25 EV manufacturers (‘working’ on the 25th). Is this a big deal? No idea. But it could be.

3.) Is the car as an electronic device important? Is software to manage the information and use cases of a car as an electronic device valuable? Hello Ivy. Probably very valuable. But not sure.

4.) is cybersecurity important? I think so. How important? Super duper important. What inning are we in? Two? 
 

I have no idea what Blackberry is worth today. I do know that it is doing business in many crazy important verticals. That are in the very early innings of their life cycle. All companies in these verticals are valued at nosebleed levels; they are valued at future potential and Blackberry has that in spades right now. 
 

What i don’t understand is why someone has not taken them out yet.

 

One of my concerns with Blackberry is if Prem wants to see it stay Canadian (and the easiest way to make that happen is to keep it under Fairfax control). 
 

Or perhaps there are national security issues. If so perhaps the plan is to sell it in digestible pieces starting with the patent portfolio. 
 

Bottom line, if they start to get more traction (growth) with EV, Ivy and cyber the stock will look cheap at US$10. 
 

Does anyone know what the rumoured selling price is for the patent portfolio that was mentioned on the call? 
 

PS: i apologize if i am sounding like a Blackberry bull… it is happening by accident

 

Personally I think the whole "keeping it Canadian" angle is nonsense. I think Prem's comments along those lines are aimed at an audience other than shareholders. This may be wishful thinking but I do not for one second believe that he would turn down a good offer for the company. National security might be an issue - the Chinese are not going to be allowed to buy this - but I don't think it would stop an American buyer. Could be wrong.

 

The obvious way to please all parties here is to sell the equity and keep the convert. This reduces downside risk, keeps substantial upside exposure, and puts a limit on the time Blackberry has to start to show results. But I don't think this will happen. I think Prem is playing for the big win here and as the performance of other holdings reduces Blackberry's impact on the overall portfolio, that's increasingly fine by me.