Billionaire investor Prem Watsa (Trades, Portfolio), leader of Fairfax Financial Holdings (TSX:FFH, Financial), revealed he increased his exposure to top holding Atlas Corp. (ATCO, Financial) by 25.73% earlier this week.
Known as “Canada’s Warren Buffett (Trades, Portfolio),” the guru’s investment strategy mimics the practices of the Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) CEO in that his insurance conglomerate purchases entire companies as well as invests its float in publicly traded companies in order to achieve a high rate of return.
After upping the stake by 0.01% during the fourth quarter of 2021, GuruFocus Real-Time Picks, a Premium feature based on 13D and 13G filings, reported Watsa gained around another 25 million common shares of the London-based asset management company on April 7. At the end of March, Atlas disclosed Fairfax intended to exercise warrants to purchase common shares of the company. The warrants, which were issued in July of 2018, had an exercise price of $8.05 per common share. Fairfax now has 6 million warrants remaining.
On the day of the transaction, Atlas’ common shares traded for an average price of $13.32 each. The exchange had an impact of 9.89% on the equity portfolio.
The Canadian guru’s firm now holds 125.7 million common shares total, which account for 48.35% of the equity portfolio. GuruFocus estimates Watsa has gained 30.05% on the investment since establishing it in the second quarter of 2018.
As a global asset management company, Atlas targets long-term, risk-adjusted returns by investing in high-quality assets in the maritime and energy sectors as well as other infrastructure verticals. The company has a $3.33 billion market cap; its shares were trading around $13.44 on Thursday with a price-earnings ratio of 10.59, a price-book ratio of 0.95 and a price-sales ratio of 2.17.
The GF Value Line suggests the stock is modestly overvalued currently based on its historical ratios, past financial performance and future earnings projections.
Atlas reported its fourth-quarter and full-year 2021 financial results on Feb. 16.
For the three months ended Dec. 31, the company posted adjusted earnings of 42 cents per share on $428.2 million in revenue, which was up 18.1% from the prior-year quarter.
For the whole year, Atlas recorded $1.65 billion in revenue, which was up from 2020, and adjusted earnings of $1.68 per share.
In his annual letter for 2021, Watsa praised Atlas’ “outstanding year” under the leadership of David Sokol and Bing Chen. He wrote:
“Seaspan, the containership leasing company owned by Atlas, will grow by almost 1 million TEU to approximately 2 million TEU over the next several years, 73 vessels and close to $12 billion of gross contracted cash flow, primarily contributed by 70 new builds. Seaspan has already delivered three new build vessels ahead of schedule and expects all vessels to be in operation by year-end 2024 as scheduled. The modern new build program, with $7.5 billion in fully funded investment, is a testament to the consistent operational excellence that David and Bing have delivered together with creative turnkey solutions for their customers. Atlas has forecast earnings per share to increase from $1.68 to $2.50 in 2024. Lots more to come from David and Bing.”
GuruFocus rated Atlas’ financial strength 3 out of 10. As a result of issuing new long-term debt over the past three years, the company has poor interest coverage. The low Altman Z-Score of 0.56 also warns the company could be at risk of bankruptcy if it does not improve its liquidity position. The return on invested capital slightly overshadows the weighted average cost of capital, so value creation is occurring as the company grows.
The company’s profitability fared better, scoring a 7 out of 10 rating on the back of an expanding operating margin. Its returns on equity, assets and capital, however, underperform over half of its competitors. Atlas also has a moderate Piotroski F-Score of 5 out of 9, indicating conditions are typical for a stable company. Despite recording a decline in revenue per share over the past five years, it has a predictability rank of one out of five stars. According to GuruFocus data, companies with this rank return an average of 1.1% annually over a 10-year period.
With a 50.72% stake, Watsa is by far Atlas’ largest guru shareholder. Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Paul Tudor Jones (Trades, Portfolio) and Michael Price (Trades, Portfolio) also held the stock as of the end of the fourth quarter.
Portfolio composition and additional holdings
Nearly half of the guru’s $3.12 billion equity portfolio, which the 13F filing for the three months ended Dec. 31 noted consisted of 63 stocks, was invested in the financial services sector, followed by much smaller positions in the technology, basic materials and real estate spaces.
Other asset management companies Watsa held as of the end of fourth-quarter 2021 were Franklin Resources Inc. (BEN, Financial), Brookfield Asset Management Inc. (BAM, Financial), KKR & Co. Inc. (KKR, Financial) and Crescent Capital BDC Inc. (CCAP, Financial).
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but the reports can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
