Partner24 Posted January 6 Posted January 6 (edited) 11 hours ago, Crip1 said: I was thinking the very same thing. Holders will look back on this as a frustrating time but, in a couple years, people will look back on this as being the good old days from a buying perspective. -Crip Hi Crip, I remember that 15 years or so ago, we had a very similar investing mindset and had similar core holdings. Are you still invested in FFH and MKL? I would be interested to get an update from you. Cheers! Edited January 6 by Partner24
Crip1 Posted January 6 Posted January 6 16 hours ago, Partner24 said: Hi Crip, I remember that 15 years or so ago, we had a very similar investing mindset and had similar core holdings. Are you still invested in FFH and MKL? I would be interested to get an update from you. Cheers! Wow, yeah, it has been a while. i trust that all is well with you. Yes, still holding Markel but trimmed my holdings substantially. Top 5 are: Fairfax, Fairfax India, Markel, BRK and JNJ. With the exception of Fairfax India, the other 4 were in all likelihood in my top 5 back then as well. The major change is that Fairfax is far and away my tp holding where, back then, I think it was Markel. -Crip
Dinar Posted January 7 Posted January 7 @Viking, take a look at this article, claims that reinsurance rates are up 50%. I am trying to find out if that is true, have people heard anything? https://nypost.com/2024/01/06/real-estate/america-is-running-out-of-home-owners-insurance/ I spoke with a friend who buys catastrophe bonds, and he informed me that premiums are unchanged from the high levels achieved last year. This is despite last year being a very profitable year.
Partner24 Posted January 8 Posted January 8 On 1/6/2024 at 1:12 PM, Crip1 said: Wow, yeah, it has been a while. i trust that all is well with you. Yes, still holding Markel but trimmed my holdings substantially. Top 5 are: Fairfax, Fairfax India, Markel, BRK and JNJ. With the exception of Fairfax India, the other 4 were in all likelihood in my top 5 back then as well. The major change is that Fairfax is far and away my tp holding where, back then, I think it was Markel. -Crip Yes, I'm doing fine. Hope that things go well for you too. Thanks for the update. I do not own MKL or FFH anymore. My oldest son had a MKL stock certificate for the 1st birthday (he's now 18), so it is what only remain of MKL in my family. Cheers!
Viking Posted January 8 Posted January 8 (edited) 5 hours ago, Dinar said: @Viking, take a look at this article, claims that reinsurance rates are up 50%. I am trying to find out if that is true, have people heard anything? https://nypost.com/2024/01/06/real-estate/america-is-running-out-of-home-owners-insurance/ I spoke with a friend who buys catastrophe bonds, and he informed me that premiums are unchanged from the high levels achieved last year. This is despite last year being a very profitable year. @Dinar the article you link to might be discussing what happened last year. For information on what is happening now or what might happen moving forward, below are some links you might find helpful: AM Best - 2024 Guide To Understanding the Insurance Industry https://bestsreview.ambest.com/default.aspx?altsrc=2 Gallagher Re - What A Difference A Year Makes - Jan 2024 (I haven't read this but it looks interesting) https://www.ajg.com/gallagherre/-/media/files/gallagher/gallagherre/news-and-insights/2024/january/what-a-difference-a-year-makes.pdf Other: https://www.reinsurancene.ws Great ongoing news source https://www.swissre.com/institute/ https://www.spglobal.com/ratings/en/sector/insurance/property-casualty Edited January 8 by Viking
Dipesh Patel Posted January 8 Posted January 8 https://www.marketwatch.com/story/farmers-edge-gets-raised-takeover-offer-from-fairfax-financial-946d746c Farmers Edge Gets Raised Takeover Offer From Fairfax Financial Published: Jan. 8, 2024 at 8:53 a.m. ET
giulio Posted January 9 Posted January 9 On 1/7/2024 at 11:41 PM, Dinar said: @Viking, take a look at this article, claims that reinsurance rates are up 50%. I am trying to find out if that is true, have people heard anything? https://nypost.com/2024/01/06/real-estate/america-is-running-out-of-home-owners-insurance/ I spoke with a friend who buys catastrophe bonds, and he informed me that premiums are unchanged from the high levels achieved last year. This is despite last year being a very profitable year. here is another interesting article @Dinar https://www.wsj.com/business/insurance-home-auto-rate-increases-climate-change-03b806f3?mod=itp_wsj,djemITP_h
ander Posted January 9 Posted January 9 On 1/5/2024 at 3:28 AM, Viking said: +1 Fairfax needs to re-build investor confidence. That is extremely important. Increasing the dividend is a no-brainer way to do that (yes, just one of many things that need to happen). And a material - 50% - increase in the dividend is even better (as long as it is sustainable… which it is in this case). Three things drive a share price: 1.) earnings 2.) multiple 3.) share count The spike higher in Fairfax’s shares the past three years has been driven by a spike in earnings and a rapid decrease in the share count. Multiple expansion HAS NOT HAPPENED. Yet. I think it will. But to get multiple expansion the management team will need to keep doing what they are doing - delivering solid results and communicating well. Multiple expansion is rocket fuel to a share price. I think this is an incredibly important point for all of us long-term shareholders. I do believe they are well positioned to execute and agree that "Multiple expansion HAS NOT HAPPENED." and "Multiple expansion is rocket fuel to a share price." I also agree it will happen.
gfp Posted January 9 Posted January 9 (edited) Fairfax re-opened December's 10 year note offering and borrowed another $200m on slightly better terms, FWIW https://www.fairfax.ca/press-releases/fairfax-declares-annual-dividend-01-09-2024/ (no clue why this is the file name, but it is the correct link to the note offering announcement) Edited January 9 by gfp
Hoodlum Posted January 10 Posted January 10 1 hour ago, gfp said: Fairfax re-opened December's 10 year note offering and borrowed another $200m on slightly better terms, FWIW https://www.fairfax.ca/press-releases/fairfax-declares-annual-dividend-01-09-2024/ (no clue why this is the file name, but it is the correct link to the note offering announcement) Likely done to cover the additional $5/share dividend.
Viking Posted January 10 Posted January 10 (edited) 2023 Top 10 List: Fairfax Achieves ‘Escape Velocity’ At the end of each year I put together list of what I think are the 10 most important events that have happened at Fairfax during the year (usually in terms of driving shareholder value). This is the fifth year of me doing this list. Reading each of the summaries in succession provides an interesting 5-year view of what has been going on at Fairfax. Years 2019-2022 can be found in Chapter 14 of ‘Hiding in Plain Sight,’ a collection of my old posts on Fairfax (click the link below to access the PDF file). https://thecobf.com/forum/topic/20253-fairfax-financial-60-of-the-best-posts-all-in-one-document/#comment-526661 Am I missing anything? Let me know your thoughts as, yes, the list below is quite subjective. ———— 'Escape velocity' Fairfax edition, featuring David Bowie - Space Oddity https://youtu.be/iYYRH4apXDo?si=d4s1WQjQEBdQufBP Prem to Fairfax investors: “Take your protein pills and put your helmet on.” Prem needs to show up at the AGM this year dressed like David Bowie... especially the hair and platform shoes! ————— Fairfax’s business and financial results have been steadily improving each of the past three years. 2023 was the year overall company performance achieved ‘escape velocity’ - finally breaking free from the gravitational pull/orbit of its recent past (2010-2020). The company - its business results/earnings and reputation - is now charting new territory. Investors have noticed. Fairfax’s stock increased 55% in 2023. Over the past 3 years, Fairfax’s stock is up 170% and it has outperformed the S&P500 by a staggering 143%. Book value per share increased at Fairfax by 33% in the 9 months to Sept 30, 2023, and 83% over the past 33 months. My guess is BV will be up nicely in Q4. This is best-in-class performance compared to other P/C insurance peers. The performance of a few that I follow - Chubb, WR Berkley and Markel (all good P/C insurers) - has not come close to the performance of Fairfax over the past three years (in terms of growth of BV/share). A dividend of US$10/share was paid Jan 2023. Fairfax recently announced the dividend to be paid in January 2024 will increase to $15/share, which is an increase of 50%. ————— Top 10 'events’ driving shareholder value in 2023 1.) Exceptional overall company performance. This might sound like a cop-out. But i don’t think so. ALL three of Fairfax’s economic engines performed at a very high level in 2023: Insurance Investments - fixed income Investments - equities/derivatives As a result, Fairfax is poised to deliver - for the second year in a row - record results in each of underwriting profit, interest and dividend income and share of profit of associates. In 2023, operating income per share is poised to increase 43% (to $190/share) over 2022. Over the past three years, operating income per share is up a staggering 415% - this very important measure of company results has indeed achieved ‘escape velocity.’ My latest estimate has Fairfax delivering an ROE of about 20% in 2023. That is exceptional performance. But more important than the results delivered in 2023, Fairfax’s insurance and investment holdings continue to grow in size and improve in quality. This sets the table nicely for continued earnings growth (and high ROE’s) in the coming years. 2.) Extending the average duration of the fixed income portfolio from 1.6 years at Dec 31, 2022 to 3.1 years in October 2023. Prem Watsa - Fairfax Q3, 2023 Conference Call: “Recently, in October, during the spike in treasury yields, we have extended our duration to 3.1 years with an average maturity of approximately 4 years, and yield of 4.9%.” Over the past three years, the fixed income team at Fairfax has superbly navigated the company (and Fairfax shareholders) through the greatest fixed income bubble top and subsequent bear market in history. They protected the balance sheet from booking billions in losses. And, by meaningfully extending the average duration, they have locked in high interest income for years in the future. 3.) Insurance subsidiary Allied World is delivering great results again in 2023 (after having a stellar 2022) To Sept 30, CR = 90.6%, UW profit = $318.5 million and net premiums written were +10.2% to $3.88 billion. To be fair, most of Fairfax’s insurance subsidiaries are having a very good year. There is a good chance Fairfax could deliver a company-wide CR under 94% for 2023. 4.) Using the stock price, the value of Fairfax’s position in Eurobank increased about $715 million in 2023. Over the past three years, the position is up $1.33 billion. Eurobank earnings spiked higher in 2022 and again in 2023. The company has solid growth prospects; the pending acquisition of Hellenic Bank will be a catalyst in 2024. Dividend will likely be re-instated in early 2024 and this should be supportive of the stock price. Fairfax’s decision to merge Grivalia Holdings into Eurobank in 2019 is looking especially brilliant. With hindsight, the move allowed Fairfax to sell high (Grivalia) and buy low (Eurobank). At the time, the transaction was good for both parties. 5.) The value of Fairfax’s position in FFH-Total Return Swaps increased $640 million in 2023 (giving it exposure to 1.96 million Fairfax shares). Since inception (basically three years), the position is up $1.07 billion. Fairfax shares continue to look very cheap, which suggests this position could continue to perform well for Fairfax. 6.) Estimated increase in net premiums written in 2023 of $1.4 billion or 6% to $23.7 billion. The hard market in P/C insurance that started in late 2019 continued in 2023. Over the last three years, net premiums written have increased $9 billion or 61%. For some perspective, Warren Buffett purchased P/C insurer Alleghany in 2022 for $11.2 billion. In 2022, Alleghany had gross premiums written of $8.5 billion. The growth Fairfax has experienced the past three years in net premiums written has increased the intrinsic value of the company considerably. 7.) Purchase of KIPCO’s 44.3% interest in Gulf Insurance Group, increasing Fairfax’s stake from 43.7% to 90%. Cost? Aggregate fair valuation consideration of approximately $740 million (upfront payment of around $177 million and then 4 equal annual payments of $165 million). Prem on Fairfax Q1, 2023 Conference Call: “We structured it (the deal) in a way that perhaps a lot of it (annual payments) will come from the company itself, dividends from the company.” Size of GIG (2022): Net premiums written of $1.7 billion and investments of $2.4 billion. Deal closed in December. In Q4, Fairfax will book a pre-tax gain of around $290 million. Fairfax goes from being a minority shareholder in GIG to the controlling shareholder. Strategically, this secures Fairfax’s position as one of the leading P&C insurance providers in the Middle East North Africa (MENA) region. Fairfax is using its substantial cash flow to grow its insurance operations. It is also buying more of something it already owns (and knows well), a capital allocation strategy endorsed by both Peter Lynch and Warren Buffett. 8.) Purchase of $1.8 billion of PacWest real estate loans with expected annual return of 10%. This was one of Fairfax’s big capital allocation decision of 2023; very contrarian, very opportunistic and deep value. Expansion of real estate/debt platform partnership with Kennedy Wilson (to over $4 billion in total). Fairfax also invested $200 million directly in KW in debentures (6%) with 7-year warrants (12.3 million shares with strike price of $16.21). In December, it appears Fairfax increased their commitment to the KW debt platform by $2 billion from $8 billion to $10 billion. This will be something to monitor in 2024. 9.) The market value of Fairfax’s position in Thomas Cook India (TCIL) increased about $305 million in 2023. The excess of market value to carrying value (at Sept 30) increased by about $379 million. A significant portion of the value of TCIL is not captured in Fairfax’s book value (about $338 million at YE). On December 1, Fairfax sold 40 million shares for proceeds of $67 million. Covid hit TCIL especially hard. TCIL (and Sterling Resorts) aggressively cut costs. With its travel businesses rebounding strongly in 2023, the much lower cost base is now spiking profits. 10.) Monetized another asset and booked a $275 million pre-tax investment gain (closed in Q2, 2023). Sale of Ambridge Group (MGU operations of Brit) to Amynta Group for $379 million (and an additional $100 million subject to 2023 performance targets). Fairfax also entered into multi-year strategic partnership with Amynta Asset sales are important part of capital allocation framework at Fairfax, and this is something that differentiates it from BRK and Markel. Why sell an asset? Someone values it much more and/or for strategic reasons (the asset is a better fit elsewhere). Account Change: Implementation of IFRS 17 accounting standard Jan 1, 2023, increase book value per share by $104.60. On January 1, 2023, Fairfax (and all Canadian insurers) were required to implement IFRS 17 accounting standard. The cumulative effect of implementing IFRS 17 resulted in an increase in common shareholders’ equity at Fairfax of $2.4 billion at December 31, 2022. Pre-IFRS 17, at December 31, 2022, BV/share was US$658. Post-IFRS 17, at December 31, 2022, BV/share was US$762. Below is what Fairfax has to say about IFRS 17 when they released Q1, 2023 results: Honourable mention: Digit - growth of the business during the year was solid. BIAL - back in growth mode. Fairfax India purchased another 10% for $250 million. Increase in value of Mytilineos share price. Turnaround at Brit? After a couple of years of underperformance (from an underwriting perspective) it looks like Brit might have turned the corner in 2023. Reduction in size of Blackberry debenture to $150 million (to Feb 14, 2024), down from $365 million (was $500 million in 2020). Capital is being re-allocated from under-performers to better opportunities. I estimate Fairfax will reduce shares outstanding by about 1% in 2023. This is at a slower pace than the past couple of years. Over the past three years, the share count has been reduced by 3.06 million shares or 11.7%, at an average cost of US$508. My guess is Fairfax’s BV will finish 2023 north of US$900. This is yet another example of excellent capital allocation by Fairfax. Incomplete: Meadow Foods (UK): how much did Fairfax spend to purchase a majority position in August? What are prospects of the company? (Company had £550 million in sales…) Negatives: Continued decline in prospects of Blackberry/share price (market value of Fairfax’s position is down to $165 million at Dec 31, 2023). End of Farmers Edge: Fairfax is trying to take company private (to harvest significant tax losses?). Adverse reserve development in runoff of $80 million in 1H. Something to monitor moving forward. Digit IPO: in 2023, company appeared to continued to fumble the ball with regulators in India. Digit - still waiting for clarity on compulsory convertible preferred shares (expected to take Fairfax’s ownership position from 49% to 74%); appears to be another issue with regulators in India. Personnel announcements: January 2023 Fairfax news release: “Brian Young, CEO of Odyssey Group, will begin to share oversight responsibilities with Andy Barnard, President of Fairfax Insurance Group, over all of Fairfax’s insurance and reinsurance operations. Brian Young will continue as CEO of Odyssey Group.” Edited January 10 by Viking
SafetyinNumbers Posted January 10 Author Posted January 10 (edited) Terrific post as usual Viking! It made me think about what could be on the 2024 list. We already had the 50% dividend increase. I think there is a decent chance Fairfax gets added into the S&P/TSX 60 in 2024. It's already 29th biggest in the S&P//TSX composite so when the next spot opens up, it has to be near the top or on the top of the list. That would generate ~750k-1m of buying in a very short period of time. I would expect a lot of managers benchmarked to both of those indices will have to take another look at Fairfax and increases the chances they decide to go to market weight from no position. Chances also are PMs will have to revisit being overweight IFC, if FFH becomes a bigger weight. IFC is currently 22nd biggest in the Composite at ~121bp and FFH is 96bp. The anticipated Eurobank dividend might have a very big impact on valuation as Viking pointed out. IPOs of Digit and BIAL would be huge. It was easy to come up with 5 potential Top 10 items for 2024. What else would you throw on the list or is there anything on my list have less than a 50% chance of happening? Top 10 (mostly predictions) List 2024 (in no particular order) 1. Dividend increase 2. Addition to S&P/TSX 60 3. Eurobank dividend 4. Digit IPO 5. BIAL IPO 6. ? Edited January 10 by SafetyinNumbers
Haryana Posted January 10 Posted January 10 https://www.theglobeandmail.com/investing/markets/inside-the-market/article-these-two-stocks-might-be-removed-from-the-tsx-60-scotiabank/ “TSX 60 Deletion Watch on AQN [Algonquin Power and Utilities, AQN-T] & FM [First Quantum Minerals Ltd., FM-T] — Keep an Eye on 0.2 per cent. FM and AQN have shrunk to being the two smallest stocks in the TSX 60 with only a 0.25% weight. A historical analysis of past deletions highlights a deletion danger zone below 0.2 per cent. The index committee’s decision could be swifter for AQN if it breaches 0.2 per cent given an extended period of time at low weight already. FM could be given a pass for a longer period in our view: the collapse is recent, stems from a specific event (Cobre Panama), and could be reversed. Most Likely Replacements for AQN or FM: FFH, then TFII”
SafetyinNumbers Posted January 10 Author Posted January 10 49 minutes ago, Haryana said: https://www.theglobeandmail.com/investing/markets/inside-the-market/article-these-two-stocks-might-be-removed-from-the-tsx-60-scotiabank/ “TSX 60 Deletion Watch on AQN [Algonquin Power and Utilities, AQN-T] & FM [First Quantum Minerals Ltd., FM-T] — Keep an Eye on 0.2 per cent. FM and AQN have shrunk to being the two smallest stocks in the TSX 60 with only a 0.25% weight. A historical analysis of past deletions highlights a deletion danger zone below 0.2 per cent. The index committee’s decision could be swifter for AQN if it breaches 0.2 per cent given an extended period of time at low weight already. FM could be given a pass for a longer period in our view: the collapse is recent, stems from a specific event (Cobre Panama), and could be reversed. Most Likely Replacements for AQN or FM: FFH, then TFII” Thanks for sharing. I assume the Committee also has to consider the relative size of FFH vs whatever it’s replacing in the 60. Perhaps that mitigates the historic 20bp rule of thumb. It would be interesting to know the ratio of weights of every add to every deletion historically. That might give us a clue as to when they might act voluntarily or when Fairfax might become an outlier. My guess that this likely happens in 2024, is somewhat predicated on strong book value growth and multiple expansion leading to a much higher weight than 96bps by the end of 2024. Lots of things have to go right but I still like the odds.
Viking Posted January 10 Posted January 10 (edited) 2 hours ago, SafetyinNumbers said: Terrific post as usual Viking! It made me think about what could be on the 2024 list. We already had the 50% dividend increase. I think there is a decent chance Fairfax gets added into the S&P/TSX 60 in 2024. It's already 29th biggest in the S&P//TSX composite so when the next spot opens up, it has to be near the top or on the top of the list. That would generate ~750k-1m of buying in a very short period of time. I would expect a lot of managers benchmarked to both of those indices will have to take another look at Fairfax and increases the chances they decide to go to market weight from no position. Chances also are PMs will have to revisit being overweight IFC, if FFH becomes a bigger weight. IFC is currently 22nd biggest in the Composite at ~121bp and FFH is 96bp. The anticipated Eurobank dividend might have a very big impact on valuation as Viking pointed out. IPOs of Digit and BIAL would be huge. It was easy to come up with 5 potential Top 10 items for 2024. What else would you throw on the list or is there anything on my list have less than a 50% chance of happening? Top 10 (mostly predictions) List 2024 (in no particular order) 1. Dividend increase 2. Addition to S&P/TSX 60 3. Eurobank dividend 4. Digit IPO 5. BIAL IPO 6. ? @SafetyinNumbers i think your list is a good start. Here are some thoughts: 1.) equity position with most upside in 2024? Eurobank. I was surprised to see the stock value of Fairfax’s position up +$700 million in 2023. That values Eurobank at Euro 1.61/share. I think analyst price targets are currently in the Euro 2.25/share range. Eurobank could easily be up 30% in 2024 = $600 million gain for Fairfax. Re-starting the dividend at Eurobank will be very good. But Hellenic Bank could really drive earnings later in the year. The Eurobank management team is very good - my guess is they are not done growing. 2.) FFH-TRS: it would not shock me to see Fairfax’s share price increase $300 in 2024 = another $600 million gain. Not a prediction. We will see. If you prediction of Fairfax getting added to the TSX60 comes true - that would just be another tailwind, and probably a significant one. 3.) India has been a very quiet region for Fairfax for a couple of years now. I suspect that will change in 2024. You highlight two big potential catalysts: - Digit IPO: could we see a +$500 million increase in the value of Fairfax’s stake? There are also the ‘compulsory convertible preferred shares’ that Fairfax owns… when they get valued properly that will increase Fairfax’s ownership stake in Digit (74%?) and result in a big gain ($300 million?). - Anchorage IPO (BIAL): i think BIAL is the real deal. The more i read/research the more i like that asset. And there are reports Fairfax is bidding for part of IDBI Bank. if successful, that would be a big investment (even for a 10% stake). - https://www.livemint.com/companies/news/carlyle-fairfax-dbs-bank-may-bid-for-idbi-bank-11670349260107.html The problem with India is it is impossible to predict the timing of these events. I would probably be 50% for Digit IPO and 40% for Anchorage IPO - but those are wild guesses (more than my usual guesses). 4.) Is 2024 the year investors start to notice Fairfax’s group of consolidated holdings? Do we see $200 million in annual earnings from this group? Perhaps $250 million? Does Fairfax continue to grow the number of holdings in this group? Is the plan at Fairfax to morph into more of a Berkshire type structure? And make a concerted effort to grow another large income stream (that would complement the insurance businesses)? I am not sure. But they kind of appear to be moving in that direction a little. 5.) Poseidon. This is a massive holding for Fairfax. And it has been in a holding pattern for the past 2 years. More of the same in 2024? Or do we see earnings (finally) start to grow as the company modelled a couple of short years ago. They certainly messed up with the structure of their debt in a rising rate environment (surprising given Fairfax’s positioning two years ago). But i do think Sokol will get the train back on the rails… just not sure if it happens in 2024 or 2025. Probably 2025 - but we will see. 6.) Commodity holdings: Stelco, Foran Mining, EXCO, OXY, Altius Minerals - i think some of these holdings are going to rip higher in the next up-cycle in commodities (late 2024 or 2025?). Just not sure if that is 2024 or 2025. I love Stelco - it is a coiled spring. Foran is a lottery ticket. I wonder if EXCO gets sold (nat gas). Buffett sees something with OXY. 7.) Insurance - I am looking forward to seeing what GIG does to Fairfax’s balance sheet at year end when it gets consolidated. Total investments/float should get a nice pop. - Does the hard market continue into 2024? If Fairfax can get another year of 5 or 6% growth in net premiums written that would be great. With GIG that would put them +10% for the year, which would be very good. - Can we get another year with CR of around 95% or 96%? Lots of investors think it has to go to 100% - and quickly. I am not convinced. 8.) Kennedy Wilson debt platform. This went from $2 to over $4 billion in 2023. Do we go over $6 billion (or higher) in 2024? What is average interest rate earned? Is 8% a crazy high number? $6 billion at 8% = $480 million. 9.) Rabbit: For the past couple of years, Fairfax has pulled a rabbit out of their hat - something that no one is expecting that is good for shareholders. I think we get another one in 2024 - and, of course, i have no idea what it is. 10.) Like each of the past 5 or 6 years, capital allocation is going to be huge again in 2024. Why? Earnings at Fairfax are so high. The team is going to have billions to allocate, especially if they sell/monetize one or two largish holdings. What new income streams are they going to seed/create? In what bucket? Insurance or investments? Public or private? Anyways, there are some random/rambling thoughts about 2024… Would love to hear what others are thinking. Edited January 10 by Viking
glider3834 Posted January 10 Posted January 10 (edited) 3 hours ago, Viking said: Incomplete: Meadow Foods (UK): how much did Fairfax spend to purchase a majority position in August? What are prospects of the company? (Company had £550 million in sales…) They now have significant control of Swan Topco - shareholding % not available - which in turn owns 100% of Meadow Foods which is the main subsidiary Below excerpts from Mar-23 consolidated financials publicly available here for Swan Topco https://find-and-update.company-information.service.gov.uk/company/11436426/filing-history It looks to be generating positive & growing net operating cash flows YoY which are being used to repay interest and repay debt (but not sure what capital structure will be post Fairfax acquisition). Swan Topco appears to have a non-cash acquisition related, goodwill amortisation exp of GBP26M , which is depressing operating profit, but gets added back to operating cash flows. Edited January 10 by glider3834
Viking Posted January 10 Posted January 10 36 minutes ago, glider3834 said: They now have significant control of Swan Topco - shareholding % not available - which in turn owns 100% of Meadow Foods which is the main subsidiary Below excerpts from Mar-23 consolidated financials publicly available here for Swan Topco https://find-and-update.company-information.service.gov.uk/company/11436426/filing-history It looks to be generating positive & growing net operating cash flows YoY which are being used to repay interest and repay debt (but not sure what capital structure will be post Fairfax acquisition). Swan Topco appears to have a non-cash acquisition related, goodwill amortisation exp of GBP26M , which is depressing operating profit, but gets added back to operating cash flows. @glider3834 thanks! I’ll take a closer look tomorrow.
glider3834 Posted January 10 Posted January 10 3 minutes ago, Viking said: @glider3834 thanks! I’ll take a closer look tomorrow.
MMM20 Posted January 10 Posted January 10 So... is this enough to extend the hard market another couple years? https://www.wsj.com/articles/u-s-saw-record-breaking-thunderstorm-damage-in-2023-e42fa775 Thunderstorms in 2023 caused $76 billion in losses in North America and Europe, a record for such weather events, which have in recent years begun to rival hurricanes in terms of the damage they collectively mete out to businesses and homes. The weather events, formally known as severe convective storms, in North America destroyed assets valued at $66 billion, according to an analysis of the year’s natural catastrophes released Tuesday by reinsurer Munich Re. About $50 billion of that was insured. In the U.S., two thunderstorm series—a Midwest storm in March and a Texas storm in June—together caused $17 billion in losses, contributing to the highest level of total thunderstorm losses the country has seen, Munich Re said. Though insurers classify thunderstorms as “secondary perils,” behind primary perils such as hurricanes and earthquakes, their volume in 2023 led to cumulative losses that outstripped those caused by a season of hurricanes. Beyond rain and thunder, severe convective storms can spawn damaging phenomena such as hail, tornadoes and straight-line winds.
Hamburg Investor Posted January 11 Posted January 11 @Viking Thanks again! It‘s Great, that you share all this detailed information and your thoughts. That’s really really valuable. I don’t have anything to add. If we take a step back from the company itself and don’t focus on Management, but to external factors (your analysis ist just much more important and valuable, but still) two points come to my mind: 1. Inflation und Interest rates. Falling interest rates would give book value an extra push short term as the (big) bond portfolio would be valued higher. But it would be bad mid and long-term. I am not sure, if falling interest rates after all might help the stock price in this regard. The good trend of the last year would get even more visible on the surface on the one hand, even though it would be bad news for Fairfax outlook, the value stocks it holds etc., the value creation imho on the other hand. Would be interesting to watch, how Mr. Market would react. - if rates just stay around where they are the good trend in value creation would just get more visible within this year. I guess this scenario would support rising stock price - rising interest rates would be a good thing for Fairfax value creation, but one wouldn’t see it on the surface. Again would be interesting to watch. 2. The election of the new president. If I remember correctly, then when Trump became president Prem became very active... What would he do this time? Of course, there are a lot of other external factors and my best guess is, that there will happen a lot that we don’t anticipate today. It’s just, that those topics popped up in my mind, when I tried unsuccessfully to finding about a maybe number 11 to your list. The interest rate topic imho of course is important for all insurance companies; still, I think there are 3 reasons, why it’s more important to Fairfax than for any other insurer. First Prem Invests more into old style value stocks then another insurance float guy I am aware of, e.g. in comparison to Markel or Berkshire. Second the bond portfolio is just so big in comparison to book value, so the effect to book value is just reay hugh. And third Fairfax comes from being a hated and ignored and forgotten stock to maybe getting a loved one. The ones ignoring Fairfax until today maybe won’t find their way to Fairfax if interest moves into the wrong direction and they don’t find the stock in the typical lists of strong growers, etc. Do you have any opinion to these two topics?
Xerxes Posted January 11 Posted January 11 2 hours ago, Hamburg Investor said: The election of the new president. If I remember correctly, then when Trump became president Prem became very active... What would he do this time? This one is interesting. It was not Trump election per say (as a investment related to the presidential cycle) but rather that “the animals spirits” being released after a decade of Obama-doldrum was going to move long term yield. So the long-dated portfolio was liquidated in late 2016. Saved bunch of money on that initial move. But it took YEARS for the long rates to actually inch up. It took a global pandemic to truly let loose the animal spirits. Just like it took a World War to pull the 1930 economies out of the doldrums of depression. So Prem was right in 2016 but also too early
TwoCitiesCapital Posted January 11 Posted January 11 1 minute ago, Xerxes said: This one is interesting. It was not Trump election per say (as a investment related to the presidential cycle) but rather that “the animals spirits” being released after a decade of Obama-doldrum was going to move long term yield. So the long-dated portfolio was liquidated in late 2016. Saved bunch of money on that initial move. But it took YEARS for the long rates to actually inch up. It took a global pandemic to truly let loose the animal spirits. Just like it took a World War to pull the 1930 economies out of the doldrums of depression. So Prem was right in 2016 but also too early A fair summary
Viking Posted January 11 Posted January 11 (edited) 4 hours ago, Hamburg Investor said: @Viking Thanks again! It‘s Great, that you share all this detailed information and your thoughts. That’s really really valuable. I don’t have anything to add. If we take a step back from the company itself and don’t focus on Management, but to external factors (your analysis ist just much more important and valuable, but still) two points come to my mind: 1. Inflation und Interest rates. Falling interest rates would give book value an extra push short term as the (big) bond portfolio would be valued higher. But it would be bad mid and long-term. I am not sure, if falling interest rates after all might help the stock price in this regard. The good trend of the last year would get even more visible on the surface on the one hand, even though it would be bad news for Fairfax outlook, the value stocks it holds etc., the value creation imho on the other hand. Would be interesting to watch, how Mr. Market would react. - if rates just stay around where they are the good trend in value creation would just get more visible within this year. I guess this scenario would support rising stock price - rising interest rates would be a good thing for Fairfax value creation, but one wouldn’t see it on the surface. Again would be interesting to watch. 2. The election of the new president. If I remember correctly, then when Trump became president Prem became very active... What would he do this time? Of course, there are a lot of other external factors and my best guess is, that there will happen a lot that we don’t anticipate today. It’s just, that those topics popped up in my mind, when I tried unsuccessfully to finding about a maybe number 11 to your list. The interest rate topic imho of course is important for all insurance companies; still, I think there are 3 reasons, why it’s more important to Fairfax than for any other insurer. First Prem Invests more into old style value stocks then another insurance float guy I am aware of, e.g. in comparison to Markel or Berkshire. Second the bond portfolio is just so big in comparison to book value, so the effect to book value is just reay hugh. And third Fairfax comes from being a hated and ignored and forgotten stock to maybe getting a loved one. The ones ignoring Fairfax until today maybe won’t find their way to Fairfax if interest moves into the wrong direction and they don’t find the stock in the typical lists of strong growers, etc. Do you have any opinion to these two topics? @Hamburg Investor I am going to push back on what you are trying to ask: I don’t think you can separate Fairfax management from external factors/events - the two are symbiotic. Is this what Soros called ‘reflexivity’? Let’s look at interest rates. If interest rates stay where they are, Fairfax will likely sit on current holdings/positions and collect interest. If interest rates fall 100 basis points on the long end, Fairfax will perhaps shorten duration and harvest some gains. If interest rates increase 100 basis points on the long end, Fairfax will likely extend duration and lock in high yields. My point is Fairfax will thoughtfully adjust to high volatility events. Look what happened last April. We had a mini-banking crisis. If we had discussed it before it happened, we probably would have guessed it would probably be bad for Fairfax (for any number of reasons). It ended up being good for Fairfax because they were able to pick up $1.8 billion in real estate loans that they will earn a return on of about 10%. Partner Kennedy Wilson picked up PacWest’s real estate team - greatly expanding their capabilities; my guess is this over time will prove be a great move. There will also be second order effects over time. Back to interest rates… Over time, where interest rates go will also impact parts of the insurance market (underwriting margins), although i am sceptical the linkage is as strong as some on this board think is the case. So if long rates decline 100 basis points then perhaps the hard market continues in parts of the insurance market. The opposite id long rates increase 100 basis points. If the hard market persists Fairfax will continue to allocate capital to insurance subs. If the hard market turns soft, Fairfax will shift and allocate capital to investments / dividends / stock buybacks. My point is Fairfax will thoughtfully adjust to events. A Trump victory in the fall? We need to see what the platform is for each candidate. My guess is Trump will run on a pro-business (less government) type of platform. He also will likely be a big spender (the government will continue to run big deficits) - he is a real estate guy after all. I think you would want to have your portfolio positioned for higher economic growth and higher inflation - but that is my early guess. (It would not surprise me to see Trump fire Powell and appoint Fed members who will support his views/policies.) How will this impact Fairfax? No idea. But i am confident we will get volatility in financial markets and Fairfax will be ready to pounce (again). In terms of investors reaction and stock price… well, anything can happen in the short run. Fairfax’s stock price is being set day-to-day by Mr Market (a manic depressive). With Fairfax I am focussed on earnings. And capital allocation. Macro, especially high volatility, is opportunity for Fairfax. At least that is how things have played out the past 5 years. Active management appears to matter again. Did i answer your question? ————— Perhaps you are trying to look at Fairfax through the lens of an economist… let’s assume Fairfax management does nothing… how would a change in interest rates affect Fairfax? This is perhaps a ‘theory’ based way of looking at things. I prefer (try?) to focus on a ‘reality’ based way of looking at Fairfax. What do i think will actually happen in the real world. Toggling between the two is perhaps the best approach (understand the theory but also how things are likely to play out in the real world). Edited January 11 by Viking
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