Fairfax 2021

[ourkid8]

Why do you say you doubt it will last?  Compare BB's valuation to it's competitors in the segments they compete in and let us know what you see. 

 

Absolutely right. I don't think Fairfax will be able to capitalise on the current share price any time soon and I doubt it will last. Pity.

[bearprowler6]

Why do you say you doubt it will last?  Compare BB's valuation to it's competitors in the segments they compete in and let us know what you see. 

 

Absolutely right. I don't think Fairfax will be able to capitalise on the current share price any time soon and I doubt it will last. Pity.

 

Perhaps the others are overvalued and BB is valued correctly?

 

There are many threads on this site that go to great length outlining how many companies in the tech sector are overvalued and how the growth managers guys are wrong and the value managers are correct. Now we are to believe that BB (a value stock?) will reach the heights of the other tech/growth stocks that it compares to?

 

 

[Dazel]

So yes, Fairfax can capitalize on this Blackberry advance if they want to. I think Everyone here has been so beat down by Blackberry over the years we may over looking some of its value vs the marketplace.

 

In this crazy market it could easily go into the 20’s and maybe a lot higher! Have you seen Tesla lately? Well blackberry is heavy in their industry now with AWS as a partner....this integration is worth a lot of future $....what’s $100 on 175,000,000 cars? Security on everything from your watch to your toaster...and royalty division just winning very big certainly takes it value a lot higher. Everyone is free game after Facebook battled and lost! yes it looks like speculation because it is so quick...and yes this thing has been on a tear and I get the sceptics I have been one! Companies like Tesla and Amazon have free money to spend (their share price)...to name two..Crowdstrike? Why would they not buy Blackberry for pennies compared to their market cap and enter the car market that took 10 years for Blackberry to build for example. Anyways....blah blah....

 

Fairfax would likely write up a swap contract with an investment bank to synthetically short Blackberry if they wanted to that would lock up their gains. They could also enter the market and short BB themselves and cover the shorts with the shares they own. They would not have to cover until they wanted to so you would not see these actions in public filings...

 

 

[bearprowler6]

 

Fairfax would likely write up a swap contract with an investment bank to synthetically short Blackberry if they wanted to that would lock up their gains. They could also enter the market and short BB themselves and cover the shorts with the shares they own. They would not have to cover until they wanted to so you would not see these actions in public filings...

 

Not likely allowed with Prem on the Blackberry board?

[lessthaniv]

The USD denominated shares are only down 0.77 so a big discrepancy.

 

FFH is down over 4% today. I don't see other insurers down.  Is anyone aware of any news that may be driving this?

 

 

Xerxes noted that it is trading X-D today, so shave US$10/sh off the price for that alone.

 

 

SJ

 

 

Yes, you are right.  Perhaps that problem occurred yesterday?  The current USDCAD=1.2646 and the FRFHF/FFH=1.2679, so the prices are at least consistent with today's exchange rate.

 

 

SJ

 

Yesterday, FRFHF closed at US $381.74. Currently at US$369 after opening up at US$372.16. So, at the moment its off about US$13 from yesterday's close.

[Daphne]

Short term owners who came in for the divi. Pretty good return on a one or two month investment

[StubbleJumper]

So yes, Fairfax can capitalize on this Blackberry advance if they want to. I think Everyone here has been so beat down by Blackberry over the years we may over looking some of its value vs the marketplace.

 

In this crazy market it could easily go into the 20’s and maybe a lot higher! Have you seen Tesla lately? Well blackberry is heavy in their industry now with AWS as a partner....this integration is worth a lot of future $....what’s $100 on 175,000,000 cars? Security on everything from your watch to your toaster...and royalty division just winning very big certainly takes it value a lot higher. Everyone is free game after Facebook battled and lost! yes it looks like speculation because it is so quick...and yes this thing has been on a tear and I get the sceptics I have been one! Companies like Tesla and Amazon have free money to spend (their share price)...to name two..Crowdstrike? Why would they not buy Blackberry for pennies compared to their market cap and enter the car market that took 10 years for Blackberry to build for example. Anyways....blah blah....

 

Fairfax would likely write up a swap contract with an investment bank to synthetically short Blackberry if they wanted to that would lock up their gains. They could also enter the market and short BB themselves and cover the shorts with the shares they own. They would not have to cover until they wanted to so you would not see these actions in public filings...

 

 

Yes, the potential value crystallization through an acquisition is the most likely way that FFH exits with a profit.  If current market cap after deb conversion is ~$8B, there's no problem for one of the big-boys to offer ~$12B as that would be a drop in the bucket compared to a $1 trillion market cap.

 

But, you make a good point about the value of $100 on 175m cars.  What is that worth?  I would say that would be worth roughly BB's current market cap.  Global auto sales are about 70m units per year.  If, by some miracle, BB manages to get its tech into 20% of the autos sold over the next decade, that would be about 140m units multiplied by your hypothetical profit of $100/unit.  So, in rough terms $14B profit over a decade.  Discount that back to today and it might be worth the current market cap of $8B.  Now all you need to do is get your 20% market penetration sometime soon and to have it endure for several years!

 

Let's hope that you are right that one of the big-boys will be a buyer!

 

 

SJ

[Xerxes]

YES, if BB were a wholly owned sub, you would have still seen plenty of emotions and reactions to the fact that it has been on the balance sheet for a DECADE and has barely provided any cashflows for the holdco or the insurance subs (the only cashflows have been the interest on the debs).  What is more, it has been burning through cash for multiple years, writing down assets and generally languishing.  Any wholly owned asset showing those characteristics would have raised the ire of shareholders, unless FFH could find a way to "hide" its poor performance by mixing it in with a bunch of other subs (eg, we never did get much disclosure about how well Toys R Us is doing, nor did we get much info about how the Port of Churchill was doing...they were not material, so that may be a reason for not having provided disclosure, but let us just say that it's nice to not need to provide a detailed report if the acquisitions are losers).

 

The complaints about BB have rarely been about BB's strategy or even their execution.  BB has always been a tech company and has always been subject to a rapidly changing operating environment, so that is what it is -- the lack of predictability has been present from Day 1.  The complaints have mainly been about the amount of capital that FFH dedicated to a company which clearly is outside of their sphere of competence, and the fact that FFH continued to pile more and more capital into BB as the price declined.  This is principally a question of decisions around position-sizing and risk management.  That question of position-sizing remains an issue today because it limits FFH's range of potential exit strategies (as an "insider" on the BoD, they effectively cannot easily trim their position because of the requirement for regulatory disclosure for their trades).

 

No comment on BB's transition away from smartphones towards software -- good luck to them.  But, at a certain point, shareholders like FFH need to undertake their own valuation exercise.  Understanding that there will be 600m shares outstanding after FFH converts the debs and that the prevailing price is US$13+ today, that gives you a basic market cap of US$8B.  So, how much annual income do we eventually need to see to support a $8B market cap?  My take is that you'd need more income than BB is capable of generating  (I threw the question out a couple of days ago and nobody rose to the bait).  But, I might be wrong.  Trimming your position as the price rises is a very basic strategy to manage that risk.  Given the rapid rise in price, I wouldn't even object to the full divestment of the position, but my concern about that is that BB YOLO might not last long enough for that...

 

The big boys got the cash; but even the big boys wont waste capital on something that is not something, which what Blackberry was few years ago. Big Techs are not in the business of private equity, where they would buy company and surgically remove what they really like and sell off the pieces. They need to have jewel already polished and in a presentable form, and then ,,, they will pay top dollar and open their checkbooks. That is what John is doing.

 

FFH started as a value investor in BB, but as the initial bet went off, it confused itself/role with that of a passive private equity. If you were to read Watsa' comment about BB back in 2013 in his letter, you will see how irrelevant those comments are today vis a vis what BB looks like today and where it is going. If you were to read Buffet's comment on Apple in late 2016 when he started to swing his bat at Apple in slow motion, you will see his comments are valid 4 years later and in fact have aged well.

 

So definitely the initial thesis was off for BB and Watsa was wrong as he has freely admitted. But that "wrong" is now sunked, and now that you are in the cusp of really getting traction on that investment on the business front, and i am not talking about the short-term non-sticky YOLO, it is not time to exit BB in the way they exited Overstock. Or for that matter when they sold Johnson & Johnson and other holdings higher on the quality ladder. They seem to leave a lot of money on the table. Sure, they can use derivative intelligently as previous posts to lock in some gains. For BB only, I (the short complainer) authorize the intelligent use of shorts to offset a partial downdraft from here. 

 

As for position sizing, although myself, I complain about position sizing when it comes to FFH and its market timing (i.e. Stelco), I also admit what i like about FFH is the concentration in its common equity bets.

 

BTW i believe we are still far from the breakeven price for FFH on the commons. I believe it is $17 USD.

[TwoCitiesCapital]

YES, if BB were a wholly owned sub, you would have still seen plenty of emotions and reactions to the fact that it has been on the balance sheet for a DECADE and has barely provided any cashflows for the holdco or the insurance subs (the only cashflows have been the interest on the debs).  What is more, it has been burning through cash for multiple years, writing down assets and generally languishing.  Any wholly owned asset showing those characteristics would have raised the ire of shareholders, unless FFH could find a way to "hide" its poor performance by mixing it in with a bunch of other subs (eg, we never did get much disclosure about how well Toys R Us is doing, nor did we get much info about how the Port of Churchill was doing...they were not material, so that may be a reason for not having provided disclosure, but let us just say that it's nice to not need to provide a detailed report if the acquisitions are losers).

 

The complaints about BB have rarely been about BB's strategy or even their execution.  BB has always been a tech company and has always been subject to a rapidly changing operating environment, so that is what it is -- the lack of predictability has been present from Day 1.  The complaints have mainly been about the amount of capital that FFH dedicated to a company which clearly is outside of their sphere of competence, and the fact that FFH continued to pile more and more capital into BB as the price declined.  This is principally a question of decisions around position-sizing and risk management.  That question of position-sizing remains an issue today because it limits FFH's range of potential exit strategies (as an "insider" on the BoD, they effectively cannot easily trim their position because of the requirement for regulatory disclosure for their trades).

 

No comment on BB's transition away from smartphones towards software -- good luck to them.  But, at a certain point, shareholders like FFH need to undertake their own valuation exercise.  Understanding that there will be 600m shares outstanding after FFH converts the debs and that the prevailing price is US$13+ today, that gives you a basic market cap of US$8B.  So, how much annual income do we eventually need to see to support a $8B market cap?  My take is that you'd need more income than BB is capable of generating  (I threw the question out a couple of days ago and nobody rose to the bait).  But, I might be wrong.  Trimming your position as the price rises is a very basic strategy to manage that risk.  Given the rapid rise in price, I wouldn't even object to the full divestment of the position, but my concern about that is that BB YOLO might not last long enough for that...

 

The big boys got the cash; but even the big boys wont waste capital on something that is not something, which what Blackberry was few years ago. Big Techs are not in the business of private equity, where they would buy company and surgically remove what they really like and sell off the pieces. They need to have jewel already polished and in a presentable form, and then ,,, they will pay top dollar and open their checkbooks. That is what John is doing.

 

FFH started as a value investor in BB, but as the initial bet went off, it confused itself/role with that of a passive private equity. If you were to read Watsa' comment about BB back in 2013 in his letter, you will see how irrelevant those comments are today vis a vis what BB looks like today and where it is going. If you were to read Buffet's comment on Apple in late 2016 when he started to swing his bat at Apple in slow motion, you will see his comments are valid 4 years later and in fact have aged well.

 

So definitely the initial thesis was off for BB and Watsa was wrong as he has freely admitted. But that "wrong" is now sunked, and now that you are in the cusp of really getting traction on that investment on the business front, and i am not talking about the short-term non-sticky YOLO, it is not time to exit BB in the way they exited Overstock. Or for that matter when they sold Johnson & Johnson and other holdings higher on the quality ladder. They seem to leave a lot of money on the table. Sure, they can use derivative intelligently as previous posts to lock in some gains. For BB only, I (the short complainer) authorize the intelligent use of shorts to offset a partial downdraft from here. 

 

As for position sizing, although myself, I complain about position sizing when it comes to FFH and its market timing (i.e. Stelco), I also admit what i like about FFH is the concentration in its common equity bets.

 

BTW i believe we are still far from the breakeven price for FFH on the commons. I believe it is $17 USD.

 

+1 Generally agree that selling to a party that has some synergies is the best exit strategy at the best price. I certainly hope FFH is able to do so, but if they're not currently entertaining those discussions, it could be worthwhile to consider the current rally as an encouraging environment in which to trim the position in - subject to regulatory approvals and etc.

 

There has been multiple discussions on FFH's average price on BB. I believe all of those discussions end up with a breakeven cost of ~$10 for Fairfax's common equity. This is largely the result of doubling/tripling the position back in 2011/2012 time frame when BB was ~$6-7/share. I believe there is an interview with Prem floating around somewhere from around that time that also confirmed the $10/share breakeven.

[Parsad]

YES, if BB were a wholly owned sub, you would have still seen plenty of emotions and reactions to the fact that it has been on the balance sheet for a DECADE and has barely provided any cashflows for the holdco or the insurance subs (the only cashflows have been the interest on the debs).  What is more, it has been burning through cash for multiple years, writing down assets and generally languishing.  Any wholly owned asset showing those characteristics would have raised the ire of shareholders, unless FFH could find a way to "hide" its poor performance by mixing it in with a bunch of other subs (eg, we never did get much disclosure about how well Toys R Us is doing, nor did we get much info about how the Port of Churchill was doing...they were not material, so that may be a reason for not having provided disclosure, but let us just say that it's nice to not need to provide a detailed report if the acquisitions are losers).

 

The complaints about BB have rarely been about BB's strategy or even their execution.  BB has always been a tech company and has always been subject to a rapidly changing operating environment, so that is what it is -- the lack of predictability has been present from Day 1.  The complaints have mainly been about the amount of capital that FFH dedicated to a company which clearly is outside of their sphere of competence, and the fact that FFH continued to pile more and more capital into BB as the price declined.  This is principally a question of decisions around position-sizing and risk management.  That question of position-sizing remains an issue today because it limits FFH's range of potential exit strategies (as an "insider" on the BoD, they effectively cannot easily trim their position because of the requirement for regulatory disclosure for their trades).

 

No comment on BB's transition away from smartphones towards software -- good luck to them.  But, at a certain point, shareholders like FFH need to undertake their own valuation exercise.  Understanding that there will be 600m shares outstanding after FFH converts the debs and that the prevailing price is US$13+ today, that gives you a basic market cap of US$8B.  So, how much annual income do we eventually need to see to support a $8B market cap?  My take is that you'd need more income than BB is capable of generating  (I threw the question out a couple of days ago and nobody rose to the bait).  But, I might be wrong.  Trimming your position as the price rises is a very basic strategy to manage that risk.  Given the rapid rise in price, I wouldn't even object to the full divestment of the position, but my concern about that is that BB YOLO might not last long enough for that...

 

The big boys got the cash; but even the big boys wont waste capital on something that is not something, which what Blackberry was few years ago. Big Techs are not in the business of private equity, where they would buy company and surgically remove what they really like and sell off the pieces. They need to have jewel already polished and in a presentable form, and then ,,, they will pay top dollar and open their checkbooks. That is what John is doing.

 

FFH started as a value investor in BB, but as the initial bet went off, it confused itself/role with that of a passive private equity. If you were to read Watsa' comment about BB back in 2013 in his letter, you will see how irrelevant those comments are today vis a vis what BB looks like today and where it is going. If you were to read Buffet's comment on Apple in late 2016 when he started to swing his bat at Apple in slow motion, you will see his comments are valid 4 years later and in fact have aged well.

 

So definitely the initial thesis was off for BB and Watsa was wrong as he has freely admitted. But that "wrong" is now sunked, and now that you are in the cusp of really getting traction on that investment on the business front, and i am not talking about the short-term non-sticky YOLO, it is not time to exit BB in the way they exited Overstock. Or for that matter when they sold Johnson & Johnson and other holdings higher on the quality ladder. They seem to leave a lot of money on the table. Sure, they can use derivative intelligently as previous posts to lock in some gains. For BB only, I (the short complainer) authorize the intelligent use of shorts to offset a partial downdraft from here. 

 

As for position sizing, although myself, I complain about position sizing when it comes to FFH and its market timing (i.e. Stelco), I also admit what i like about FFH is the concentration in its common equity bets.

 

BTW i believe we are still far from the breakeven price for FFH on the commons. I believe it is $17 USD.

 

+1 Generally agree that selling to a party that has some synergies is the best exit strategy at the best price. I certainly hope FFH is able to do so, but if they're not currently entertaining those discussions, it could be worthwhile to consider the current rally as an encouraging environment in which to trim the position in - subject to regulatory approvals and etc.

 

There has been multiple discussions on FFH's average price on BB. I believe all of those discussions end up with a breakeven cost of ~$10 for Fairfax's common equity. This is largely the result of doubling/tripling the position back in 2011/2012 time frame when BB was ~$6-7/share. I believe there is an interview with Prem floating around somewhere from around that time that also confirmed the $10/share breakeven.

 

I believe that's correct.  Also with the convertibles at $6, the average cost would come down even more. 

 

Regarding BB's crazy run.  I bought Overstock.com at $2.99 back in March, and I also bought a ton of LEAPs.  I sold out between $20-30, because I thought that was where fair value was.  But the sucker went all the way up to $110+, which would have been a 80 bagger for me on the LEAPs and 40 bagger on the equity.  Even back down to $60+, it's 2-3X what I sold at.

 

So stupidity knows no bounds.  BB could go to $40-50.  I would hope that Fairfax as value investors would take their original capital off the table before that peak, but sometimes holding on is the right way to go after you've taken some money off...look at Tesla shareholders!  Cheers!

[cwericb]

I may be wrong but my recollection of what Prem said agrees with Xerxes ~ $17.00. However things may have improved somewhat since then.

[Parsad]

I may be wrong but my recollection of what Prem said agrees with Xerxes ~ $17.00. However things may have improved somewhat since then.

 

It was $12.30 back in 2019...I would imagine it's well below that now.  Cheers!

 

https://finance.yahoo.com/news/fairfax-financial-holdings-thinks-blackberry-121239544.html

[cwericb]

Yeah the $17 was several years ago. But if it is less I'm certainly not complaining. :)

 

[AtlCDore]

Anyone notice that for days now we see very large volumes for FFH.TO. But more interesting they are "Market On Open" and "Market On Close" order trades. For example the Market On Close on Jan 19 was 278K shares while during the day only about 40K traded. Then this morning, Jan 20, we again got 207K shares with a Market On Open order. And at 4PM EST we again saw 154K shares Market On Close volume. Just go back a few more days and you will notice the same happening with large volumes day after day. Market On Close and Market On Open are no limit orders. A regular investment manager/investor would normally not buy or sell this way. This seems to me a fund, active or passive, selling or buying based on in or out flows.

 

I do not think it is FFH buying as I understand that companies are not allowed to buy their own stock on the open or close in the US and I assume Canada probably has a similar measure, but I am not 100% sure.

 

If you count up totals for the last few weeks you end up with significant volume. Is some fund liquidating? The volume seems too large for just one (or a few) fund(s) to be adding on inflows or selling on outflows. It seems like someone is literally liquidating a large position.

 

Also, who is taking the other side of these (no limit) orders? Not regular shareholders I would guess. These market on open and market on close orders are no limit and flow is advertised between 10 and 30 minutes before the open on close. Could it be FFH is the other side of this trade? Who otherwise would be able to absorb these kind of volumes?

 

Or could it be that there is some large buyer? But why would they then trade such quantities on the open or close with no limits and not just buy during the day? A VWAP seems to me a much more efficient solution to buy that way. Has FFH been added to some index and is it passive funds buying? But why then would the buying last for such a long time? With TSLA it was done in one day.

 

Is there something I am missing? 

 

[Xerxes]

Allow me to dig in:

 

2018 letter; that is the latest i could find, it is worth nothing that this was prior to the new convert; so very likely that the fully diluted cost has changed.

 

"On a fully converted basis we own 95 million shares at a net cost of $12.30 per share."

 

2013 letter: there were some trimming back in 2013 as they got into the convertibles.

 

"We purchased $500 million of the BlackBerry convertible debentures and have said that we would sell some of our

common shares over time to rebalance our position (we have sold 5 million shares at about $10 per share as of this

writing). The rest of the convertible debentures were purchased by six contrarian long term investors, of whom four

were Canadian."

 

From 2013; in hindsight Prem had a great point about Twitter when he compared to Blackberry. Twitter didn't do anything for its shareholders. Its market cap today stands at $37 billion. Both Twitter and BB didnt do to well over the next 7 years but just goes to show that every unicorn story doesn't also pan out.

 

"Interestingly, Twitter went public, just after BlackBerry announced its convertible debt issue, at $26 per share, giving

it a market value of $18 billion. It had revenues of $665 million and losses of $645 million, and most investors could

not get a single share unless they were very good clients of the major houses underwriting the issue. On that day,

BlackBerry traded in excess of 100 million shares at $6 per share, giving it a market value of $3 billion. BlackBerry had

revenues of approximately $8 billion with cash of $2.6 billion and no debt other than the new convertible debt to be

issued. If you thought that Twitter was grossly overvalued at $26 per share, it promptly doubled and currently is

selling at $55 per share, with a market value of $39 billion."

 

2012 letter; that is where i remember the $17 USD break-even.

The initial mistake to SJ's point, was the position sizing that made it probably too hard for them to move away from, once they realize that they were off on the thesis. A year later once they probably realized their long journey, they compensated that with the interest payment on the convertibles. Nothing is wrong with being wrong, but in this case looking back, the attrition war took its toll.

 

"At its low of approximately $61⁄2 per share, it sold at 1⁄3 of book value per share and a little above cash per share (it has no debt). The stock price had declined

95% from its high! The company produces the BlackBerry which for years was synonymous with the smart phone.

The BlackBerry brand name is perhaps one of the more recognizable brand names in the world and the company

has 79 million subscribers worldwide. Revenues went from essentially zero to $20 billion in about 15 years – and

then it hit an air pocket! The company got complacent, perhaps overconfident, and did not respond quickly

enough to Apple and Android. Mike Lazaridis, the founder and a technological genius – and a good friend – asked

me to join the Board, which I did after meeting Thorsten Heins, whom Mike recommended as the next CEO of

the firm. Thorsten’s 27 years of experience in all types of leadership jobs in small and large divisions at Siemens,

combined with his five years at BlackBerry, were exactly what was needed. Thorsten hired a very capable

management team and then focused on producing a high quality BB10 – the next generation of BlackBerries. The

brand name, a security system second to none, a distribution network across 650 telecom carriers worldwide, a

79 million subscriber base, enterprise customers accounting for 90% of the Fortune 500, almost exclusive usage by

governments in Canada, the U.S. and the U.K., a huge original patent portfolio, an outstanding new operating

system developed by QNX and $2.9 billion in cash with no debt, are all formidable strengths as BlackBerry makes

its comeback! The stock price recently moved as high as $18 per share, a far cry from the $140 per share it sold at

a few years ago. And please note, 1.8 billion cell phones are sold worldwide annually, and of the 6 billion cell

phones in the world, only 1 billion are smart phones. Lots of opportunity for Canada’s greatest technology company! What is striking, even for a person like me who has seen many bull and bear markets, is that at $61⁄2 per share, all the Wall Street and Bay Street analysts were uniformly negative – just as they were uniformly positive

only a few years ago at prices north of $100 per share. John Templeton’s advice to us: “Buy at the point of

maximum pessimism”, still rings in our ears!! We own approximately 10% of the company at an average cost of

$17 per share and we are excited about its prospects under Thorsten’s leadership and Mike’s technical genius."

[Xerxes]

AtlCDore

 

On your note, while i cannot comment on the technical details that you had bought up, just because i dont know those things (volumes on open or close) very well.

My hypothesis (based on the fact that this could be FFH last chance to do so) has always been that FFH will do one big buyback in Q4/Q1 period. And that we will see it in the 2020 letter to shareholders and might even seen Prem on BNN after the fact.

 

Others have disagreed with me pointing the need to fuel up the subs etc.

 

[Daphne]

There are daily buyback limits that would preclude that volume.  Limits are a percentage of total daily volume but I don’t offhand remember the percentage.

[petec]

If their average cost was $12.30 for 95m shares, and 50m of those cost $10 (conversion of the old debt), then the other 45m cost $14.86. If we simply replace the old debt in this calculation with the new debt (55m shares for $330m, or $6 apiece) then their average cost today is $9.99. That said I don't trust the numbers in the letters. They adjust their cost for dividends paid (e.g. with Resolute) and may well have done so for debt interest too in this case. And if they have sold Blackberry shares at a loss and then bought some back, which I think may have happened, I doubt they include the loss on the shares sold in their calculation.

 

I hate to agree with SJ, but the discussion about what Blackberry is worth is starting to get a little silly. Perhaps it was a little undervalued before the recent move. Certainly I think cash flows from QNX's design wins over the last few years could have been a positive driver over the next few years. And perhaps their new security products with Cylance embedded were about to take off (in fact speculating that they had a period of slow growth while they merged products is the only way to make the Cylance deal look good).

 

Bottom line, nobody seemed to be excited about "$20 or a lot more" until three recent events: the patent sale to Huawei, the Facebook settlement, and Ivey.

 

Two of these are unquantified, so we can't do anything other than speculate on their impact on intrinsic value.

 

One of them (Ivey) is basically just an idea in code form and doesn't have any customers. It's attracted attention because it is in two hot sectors (cloud and cars) and has a powerful sponsor (Amazon). But the great attraction of cloud platforms is how fast they can scale. I think Ivey has a fundamental issue here. Yes QNX is in 175m cars and props to Blackberry for achieving that. If that existing fleet could just be plugged into Ivey the potential for rapid scaling would be electric, if you'll pardon the pun. But very very few of those cars are connected cars that remit data to their manufacturers. Ivey can't scale faster than connected cars are purchased by consumers. And plenty of competitors have time to get started before that really takes off.

 

So, can someone do the maths for me as to how Blackberry is worth "$20 or a lot more"?

 

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.

 

[petec]

I should clarify something. I'm not questioning the option value embedded in Blackberry possibly becoming a central player in the new automotive world. I can easily imagine it producing great compounded returns over the next 10 years if things play out. What I am questioning is whether the current spike is justified by fundamentals or whether one needs a lot of "faith". Because if it is faith, I can easily see a few more tough years for Fairfax in this investment.

[matthew2129]

There are daily buyback limits that would preclude that volume.  Limits are a percentage of total daily volume but I don’t offhand remember the percentage.

 

Block trades are exempted from this limitation.

[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

 

 

[wondering]

No big surprise - a virtual annual meeting this year

 

https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Announces-Virtual-Annual-Meeting/default.aspx

[Dazel]

 

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.

 

 

[Dazel]

 

 

This pull back in the stock is excellent for my scenario of selling off assets at great prices to buy back the undervalued stock at Fairfax. Get to work Fairfax! Let’s go!

[doc75]

 

 

This pull back in the stock is excellent for my scenario of selling off assets at great prices to buy back the undervalued stock at Fairfax. Get to work Fairfax! Let’s go!

 

When FFH goes ex-dividend, it *really* goes ex-dividend.