Fairfax's Stealth Rally
Quick post, but nobody is paying attention to Fairfax’s investment portfolio.
…And also Prem is a low key Unicorn Hunter.
Blackberry stock has more than quadrupled since Q3 and Fairfax’s true ownership does not appear on filings because they are hidden in low cost ($6) convertible debentures. Their Blackberry exposure was more than doubled in just September before the rally. Assuming the debentures get exercised, they would now control 16.5% of Blackberry stock with (101.725m shares).
Today, that value is now $1.7b, or an increase of US$56.50 per share (C$71.75). That’s a 12.8% increase to Fairfax’s book value. I’m pretty sure Fairfax has not sold a share since they would likely have to disclose any trade given Prem is on the board of Blackberry (although perhaps they could have done a hedge of some kind to lock in the gains).
But wait. There’s more… And unlike Blackberry, this company is not headline news.
Back in 2018, Fairfax invested $45m in Digit with a subsequent round shortly thereafter.
“Digit was founded in June 2017 by Kamesh Goyal, with backing from Fairfax, which is controlled by Indian-Canadian billionaire Prem Watsa. Goyal formerly led Allianz’s business in India.”
Digit is an Indian app based general insurer that is 100% cloud-based to simplify processes for its customers. Fast forward to 2021 and Digit is raising at $1.9b from Indian funds A91 Partners, Faering Capital and TVS Capital.
If we assume Fairfax has retained 45% ownership of Digit, that’s another ~US$17 per share of book value growth. (We don’t know what Fairfax has Digit on their books for beyond the 2019 AR)
Want more proof that Chamath has nothing on Prem?
Prem has been investing in FarmersEdge since March 2017. FarmersEdge is an agricultural SAAS company based in Winnipeg that the Globe & Mail just reported is ‘set to file a prospectus with regulators’. SAAS with agritech? Fairfax had this valued on their books in 2018 at 4x EBITDA. Not even, 4x Revenue, but 4x EBITDA…)
However, most importantly you need to look at the rest of Fairfax listed equity investments. They are highly cyclical stocks, positioning them well for a post vaccine rollout and the stocks have been on fire since Q3. Here’s just a few.
Fairfax Africa + 48%
Thomas Cook India +51%
Fairfax India +63%
Recipe Unlimited +66%
Resolute Forest Products + 94%
Excluding Blackberry, it looks like their listed equity book has increase by $1.2b or $47 in additional book value per share!
Now, a number of these companies are recorded with equity accounting so it won’t all show up directly in book value immediately but the increase frees up capital allocation options for the company.
And all of this is happening in an insurance market where pricing has been materially improving.
Anyways, I’m long shares for more than just the recent investment performance. Fairfax has been steadily improving its insurance operations and this is far more important to the investment thesis long term. But I wouldn’t be surprised if the narrative on Fairfax’s investment side becomes much more positive and quickly, pushing shares higher.
Fairfax stock has yet to recover from the pandemic and trades at 84% of Q3 stated “book value” US$442.17 (C$562.51), which I hope this article has conveyed is likely to increase in Q4 and is likely understated.
Disclosure: Long Fairfax
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