Share of Profit from Associates

[glider3834]

We are half way through 2021 but looking ahead to FY2022, I wanted to try & estimate potential income from Share of Profit of Associates. 

 

These estimates could change if Fairfax monetises positions (quite possible)and key risk includes any deterioration in economic recovery from Covid.

 

Anyway here goes

 

 

 

 

Two largest associates for Fairfax by carrying value are Eurobank & Atlas Corp  

 

Atlas Corp are forecasting $535 mil profit for Fy 2022 (see Q2 2021 presentation), I estimate Fairfax's shareholding (excluding Riverstone Europe) at around 44% based on 25 Aug-21 update (see SEC filing) - if Atlas Corp hit their forecast then Fairfax's profit share could be around $235 mil.

 

Eurobank did 7.7% approx ROTE in most recent Jun-21 Qtr, lets assume they can do slightly improved 8.5% ROE on their tangible equity circa 5bil euro at 30 Jun21 as they emerge from Covid -their target is 10% ROE but lets be conservative. Lets assume EUR USD 1.2 & Fairfax ownership of 30.5%.

Fairfax profit share would be $155mil.

 

So lets say we have a potential contribution of around $390 mil to Share of Profit of Assoc from Eurobank & Atlas Corp in FY22 (compared to $104 mil from these holdings in FY20)

 

Looking at 1HFY21 results from associates , if BIAL (international flights resuming from Sep-21) & Quess ((3) loss for 1H21 but covid still impacting demand for staffing & business process outsourcing) can move to break even in FY22, 'Other' category can contribute around 100mil in FY22 (was 25mil in Q221, & 36.2 mil in 1H21), $390 mil from Eurobank & Atlas (as above) &  $10mil contrib from Insurance associates -we could get to $500 mil for Share of Profit from Associates (& I think the highest it previously reached was 221 mil in 2018)

 

 

 

I am curious to hear other peoples' thoughts?

Cheers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Edited October 22, 2021 by glider3834

[nwoodman]

 

6 hours ago, glider3834 said:

we could get to $500 mil for Share of Profit from Associates (& I think the highest it previously reached was 221 mil in 2018)

 

Glider, that could well be right.  In addition for me you have highlighted a couple of things.  If many of the associates just move to break even then the numbers rise materially, highlighting the economics of the jewels in the crown.  I have been elevator pitching Fairfax (to those that will listen) on the basis that I can see three investments, Atlas , Eurobank and Digit that in 7-10 years time could well be worth today's market cap. 

 

What your post has highlighted is that there is a fourth, BIA, that had kind of fallen off my valuation radar.  The elevator pitch just got easier.  Whether these investments ever get reflected in the share price is another matter but if you were an owner you would want to hoover up such mispricing at a clipping rate

[petec]

Does either of you know offhand what FFH’s look-through % ownership of BIAL is, after the Anchorage deal closes?

[nwoodman]

Same as it is today as far as I know, the key is “on a look through basis”.  Happily proven wrong, but my take is that is a repackaging of their stake into Anchorage.

[petec]

1 hour ago, nwoodman said:

Same as it is today as far as I know, the key is “on a look through basis”.  Happily proven wrong, but my take is that is a repackaging of their stake into Anchorage.

No, because they’re selling 11% of Anchorage to OMERS.

 

But also I can’t remember what % of FIH is economically owned by FFH. 

[nwoodman]

Based on the press release I figured it was a wash.  

 

Currently, Fairfax India, through its wholly-owned subsidiary, FIH Mauritius Investments Ltd, owns a 54.0% equity interest in Bangalore International Airport (“BIAL”). As previously disclosed by Fairfax India, as part of the transaction, Fairfax India will restructure approximately 43.6% of its equity interest in BIAL such that it shall be held through Anchorage, implying an equity valuation for 100% of BIAL of approximately INR 189.7 billion (approximately $2.6 billion at current exchange rates), which is the same valuation implied in Fairfax India’s June 30, 2021 consolidated financial statements. Upon closing of the transaction, Fairfax India’s effective ownership interest in BIAL will decrease to approximately 49.0% on a fully-diluted basis, while its actual ownership will remain unchanged.

 

 

 

https://www.fairfaxindia.ca/news/press-releases/press-release-details/2021/Fairfax-India-Receives-All-Regulatory-Approvals-to-Complete-Sale-of-Minority-Position-of-Anchorage-Infrastructure/default.aspx

[petec]

They’re putting 43.6% of BIAL into Anchorage and then selling 11% of Anchorage to OMERS. Their economic ownership therefore goes from 54% to 49%. I think the wording about actual ownership is confusing but might refer to what they consolidate?

[nwoodman]

40 minutes ago, petec said:

They’re putting 43.6% of BIAL into Anchorage and then selling 11% of Anchorage to OMERS. Their economic ownership therefore goes from 54% to 49%. I think the wording about actual ownership is confusing but might refer to what they consolidate?

Agree entirely on the confusing wording.  I guess we will see how it gets reported in a quarter or two.