Fairfax 2024

[bearprowler6]

31 minutes ago, newtovalue said:

good point @Haryana - just checked the Blackrock site and GWO is not there.

 

i dont think there is any reason they would prefer FFH to GWO - unless someone else can opine. Furthermore companies like ATZ-T (just to name one example) are not in the 60 but the argument can be made they should be to diversify the index sector weighting.

 

Perhaps we are getting ahead of ourselves (myself included) with hopes of inclusion for FFH.

 

https://blackrock.com/ca/investors/en/products/239832/ishares-sptsx-60-index-etf

Unlikely that GWO is a candidate for inclusion in the 60 since its parent company POW is already included. The vast portion of POW's value is derived from its holding in GWO so including GWO itself would greatly over weight that company in the index.

[SafetyinNumbers]

On 7/16/2024 at 6:33 PM, bearprowler6 said:

Unlikely that GWO is a candidate for inclusion in the 60 since its parent company POW is already included. The vast portion of POW's value is derived from its holding in GWO so including GWO itself would greatly over weight that company in the index.

GWO has a low weighting because most of its market cap is included in POW’s float cap as @bearprowler6noted. It doesn’t make sense to add the 63rd biggest weight to the 60 over the 27th (FFH).

 

FFH has not been overlooked yet but it might be with the next opening. That’s probably better in the long run for most shareholders as they might be tempted to sell on the multiple expansion when the compounding in BV should go on forever. It’s just too big to not go in eventually. It’s a matter of when not if.

 

 

Edited October 6, 2024 by SafetyinNumbers

[Hoodlum]

There could be some impact from today's outages, related to Cyber Insurance coverage.

 

https://www.reinsurancene.ws/bi-claims-the-likely-focus-of-insured-losses-from-microsoft-it-outage-say-analysts/

 

Fairfax is the 3rd largest company providing coverage in the US.

 

https://www.reinsurancene.ws/chubb-remains-the-largest-writer-of-cyber-insurance-am-best/

 

[Junior R]

44 minutes ago, Hoodlum said:

There could be some impact from today's outages, related to Cyber Insurance coverage.

 

https://www.reinsurancene.ws/bi-claims-the-likely-focus-of-insured-losses-from-microsoft-it-outage-say-analysts/

 

Fairfax is the 3rd largest company providing coverage in the US.

 

https://www.reinsurancene.ws/chubb-remains-the-largest-writer-of-cyber-insurance-am-best/

 

These would be paid by CRWD as the outage was caused by them..this is like a JNJ/MMM moment for this company..The insurance companies would not insurance software you buy from a 3rd party

 

Quote

Wtf? The CrowdStrike file that broke everything was entirely full of null characters. How does this happen?

https://x.com/jeremyphoward/status/1814364640127922499

[TwoCitiesCapital]

2 hours ago, Junior R said:

These would be paid by CRWD as the outage was caused by them..this is like a JNJ/MMM moment for this company..The insurance companies would not insurance software you buy from a 3rd party

 

https://x.com/jeremyphoward/status/1814364640127922499

 

It happens when you pay the guy required to write the code in pizza parties and department meeting shout-outs

 

Obviously his boss either didn't "trust - but verify" or didn't have the ability to and has been coasting for years. 

 

 

[villainx]

3 hours ago, TwoCitiesCapital said:

Obviously his boss either didn't "trust - but verify" or didn't have the ability to and has been coasting for years. 

 

 

All the options vested already though, right?

[Parsad]

On 7/19/2024 at 12:53 PM, Hoodlum said:

There could be some impact from today's outages, related to Cyber Insurance coverage.

 

https://www.reinsurancene.ws/bi-claims-the-likely-focus-of-insured-losses-from-microsoft-it-outage-say-analysts/

 

Fairfax is the 3rd largest company providing coverage in the US.

 

https://www.reinsurancene.ws/chubb-remains-the-largest-writer-of-cyber-insurance-am-best/

 

 

https://www.cnn.com/2024/07/21/business/crowdstrike-outage-cost/index.html

 

They are estimating a billion in losses, but I can't see how it isn't 3-4 times that amount when you include all of the business loss claims.  Cheers!

[Santayana]

That's multiple years of earnings for CrowdStrike, will be interesting to see who ends up paying.

[gfp]

This article was pretty decent -

https://www.reuters.com/technology/insurers-face-business-interruption-claims-after-global-tech-outage-2024-07-19/

 

Basically a typical commercial insurance policy's Business Interruption section probably doesn't cover this type of thing unless it was specifically added.  And some cyber policies exclude non-malicious events.  The article mentions travel insurance claims.  Each affected business could sue Crowdstrike and/or Microsoft.  Doesn't sound worth it.

 

I'll bet in the long run this practice run prompts the industry to tighten up policy language and re-evaluate just how much damage a single vendor can cause with a single update.  Could end up being a good thing for insurers.

[Hoodlum]

I guess this is where the funds from the Stelco sale will be used.  This becomes one of Fairfax's larger holdings at $1.7B cdn.

 

https://www.theglobeandmail.com/business/article-fairfax-to-purchase-sleep-country-in-17-billion-deal/

 

Quote

Sleep Country Canada Holdings Inc. ("Sleep Country" or the "Company") (TSX: ZZZ), announced today that it has entered into an arrangement agreement dated July 21, 2024 (the "Arrangement Agreement") with 16133258 Canada Inc. (the "Purchaser"), a newly-formed and wholly-owned subsidiary of Fairfax Financial Holdings Limited ("Fairfax") (TSX: FFH) (TSX: FFH.U) and Fairfax, as guarantor, in respect of a transaction (the "Transaction") whereby the Purchaser will acquire all of the issued and outstanding common shares of Sleep Country for $35.00 in cash per common share (the "Purchase Price"), representing a total enterprise value of approximately $1.7 billion. The Purchase Price represents a 34% premium to the 20-day volume-weighted average price of the Company's common shares on the TSX for the period ending on July 19, 2024, and a 28% premium to the closing price on July 19, 2024.

 

Edited July 22, 2024 by Hoodlum

[hardcorevalue]

Explain it to me like I’m 12 why this makes more sense than buying back their own stock...

[Hoodlum]

11 minutes ago, hardcorevalue said:

Explain it to me like I’m 12 why this makes more sense than buying back their own stock...

 

It allows shareholders to sleep better at night.  

 

The only thing I can think is that this was a rare opportunity to buy a Company providing long term earnings/dividends, albeit in a slow-growth industry.  On the face if it, stock buy backs would be a better option over the sort term.

Edited July 22, 2024 by Hoodlum

[TwoCitiesCapital]

34 minutes ago, hardcorevalue said:

Explain it to me like I’m 12 why this makes more sense than buying back their own stock...

 

Repurchases are done at the holding co level with hold co cash. 

 

Stelco cash and investment portfolios are held at the insurance subs level and have to maintain certain levels for the insurance they underwrite. 

 

 

[Junior R]

35 minutes ago, hardcorevalue said:

Explain it to me like I’m 12 why this makes more sense than buying back their own stock...

same lol

[newtovalue]

ZZZ - Looks like roughly 10x FCF to equity holders at the acquisition price. Not terrible for an oligopoly business and growing demand due to increased population in Canada.

 

Agree with @hardcorevalue that FFH buybacks would be preferable - but perhaps the capital is trapped in the subs as @TwoCitiesCapital mentioned .

 

 

[MMM20]

Is ZZZ a good business? It doesn't screen that cheap vs ROIC which is nothing to write home about. Can someone please explain why this is a good use of capital? Do Canadians not buy mattresses online? I'm a bit baffled.

 

Edited July 22, 2024 by MMM20

[UK]

1 hour ago, TwoCitiesCapital said:

 

Repurchases are done at the holding co level with hold co cash. 

 

Stelco cash and investment portfolios are held at the insurance subs level and have to maintain certain levels for the insurance they underwrite. 

 

 

 

This was the first thought that also came to my mind as a possible explanation. But, one way or another, this only makes sense if this business is reasonably good and durable. Price paid for it suggests that somehow it has to be the case:)?

 

Edited July 22, 2024 by UK

[KPO]

2 hours ago, hardcorevalue said:

Explain it to me like I’m 12 why this makes more sense than buying back their own stock...

On the surface this seems like a low quality acquisition unless there’s some structural reason that I’m missing as to why this business is better than failing counterparts in the US (e.g Mattress Firm).  Retail bedding just seems a tough business with no moat, plus the Costco’s of the world and e-commerce can cherry pick.  

[newtovalue]

Sleep country actually owns two of the biggest DTC Canadian brands - Casper and Endy

[Luke]

Who is bullish because of this acquisition? 2b for this seems like a lot...

[gfp]

5 minutes ago, Luke said:

Who is bullish because of this acquisition? 2b for this seems like a lot...

 

What is the fully diluted share count of ZZZ?  Something like 35 million?  I'm not sure I fully understand the convertible note with Casper.

[MMM20]

1 hour ago, MMM20 said:

Is ZZZ a good business? It doesn't screen that cheap vs ROIC which is nothing to write home about. Can someone please explain why this is a good use of capital? Do Canadians not buy mattresses online? I'm a bit baffled.

 

 

[SafetyinNumbers]

43 minutes ago, Luke said:

Who is bullish because of this acquisition? 2b for this seems like a lot...

The equity component is less than a quarter’s earnings and It’s got a growing earnings yield higher than treasuries. I prefer them buying assets vs buybacks to a certain extent because it increases durability but I know I’m in the minority on that point. 

[gfp]

23 minutes ago, SafetyinNumbers said:

The equity component is less than a quarter’s earnings and It’s got a growing earnings yield higher than treasuries. I prefer them buying assets vs buybacks to a certain extent because it increases durability but I know I’m in the minority on that point. 

 

Since we usually look at Fairfax's financials in US dollar terms - this is a cash outlay of like $890 million - $900 million USD right?

[SafetyinNumbers]

3 minutes ago, gfp said:

 

Since we usually look at Fairfax's financials in US dollar terms - this is a cash outlay of like $890 million - $900 million USD right?

I think that’s right.