What's up with the sanctions and the planes?. Buffett buys reinsurer Alleghany. AMC Cinema Chain Invests in Gold Mining and Finds New Business Model.
Disclaimer: when we talk about, that something has grown, we mean a comparison with the same quarter a year earlier. Since all issuers are from the USA, then all results in dollars. When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
Non-flying weather: Russian air fleet and sanctions
This week, Western lessors demanded that Russian airlines return almost 500 aircraft. You can buy all the planes for $ 20 billion, at market price. The cost of aircraft for lessors is $ 10 billion. This, certainly, carries big problems for the Russian Federation.
Almost 3/4 aircraft fleet in the Russian Federation originally from Europe, U.S. and Canada. At the same time, Western sanctions also concern the ban on exports to the Russian Federation as aircraft., and spare parts for them. Lessors under the terms of sanctions are required to take aircraft from the Russian Federation. Western lessors own 70% from 981 Russian aircraft.
A significant part of the aircraft belongs to Irish companies - the cost of their aircraft is about 4 billion. By the way,, Irish lessors hold a huge share of the world's leasing market – almost 22% aircraft.
This is bad news for leasing companies like AerCap Holding. (NYSE: AER), which has aircraft in the Russian Federation - approximately 5% from the cost of all aircraft. It's also bad news for insurers.. The cost of insurance payments for aircraft in the Russian Federation is about $ 15 billion, which is one and a half times more than their cost, so there are long lawsuits with insurers on this issue ahead..
Looking wider, then the situation with Russia may negatively affect the leasing business in China and other countries: National Governments, non-NATO members, may well begin to worry about the safety of their aircraft and review contracts. This may have a negative impact on the revenue of the main aircraft manufacturers..
For Russian airlines, this is also a problem – in fact, they cannot fly abroad.: at each airport their, probably, bailiffs will be waiting, which will seize aircraft.
But who is good from such news - so it is the manufacturers of aircraft parts. If the aircraft for the most part remain in Russia, then Western airlines will not be able to disassemble these aircraft for spare parts - and this will stimulate new orders..
Global aircraft leasing market
| Aircraft leased | Percentage of total | |
|---|---|---|
| 1980 | 100 | 1,7% |
| 1990 | 1343 | 14,7% |
| 2000 | 3715 | 24,7% |
| 2014 | 8440 | 40% |
| 2019 | 15 300 | 50% |
Income of Irish companies from aircraft leasing by country as a percentage of the total
| China | 14% |
| Russia | 6% |
| United Kingdom | 6% |
| Ireland | 5% |
| USA | 5% |
| Brazil | 4% |
| UAE | 4% |
| Italy | 4% |
14%
Buffett plays it safe: Berkshire Hathaway acquires Alleghany
Warren Buffett's Conglomerate Berkshire Hathaway (NYSE: BRK.B) buys reinsurer Alleghany (NYSE: Y). Consider the details of the transaction.
Alleghany buy for 11.6 billion - this is 842,02 $ per share. The premium to the price of the company before the news appears is approximately 25%. It's not that crazy a lot.: Alleghany shares have been treading water for the past couple of years and still could not return to pre-pandemic levels in 825 $ per share.
If you look at relative indicators, that price, by which they take Alleghany, also looks excessive: P / S — 0,96 and P / E — 11,34. The final margin of this business is small – approximately 8,33% from its proceeds.
Disassembling the business of this company is a little more exciting, what to do with dental treatment without anesthesia: it's a dull reinsurance business.
From the shareholders' point of view, Alleghany was an almost pointless investment.: the company paid dividends sometimes. For example, she didn't pay them between 2012 and 2017., in 2019 and 2021. And when I paid, then it wasn't very large amounts.
Let's say, the, who held shares in the company 5 Martha 2020, she's later 11 days — paid 15 $ dividends. The value of the shares at that time was 674 $, what would give you 2,22% per annum. Let me remind you, that then the stakes had not yet hit the bottom and that's it., which was below 3% per annum, investors rightly valued it as pennies. And if you took shares of the company, for example, in December 2019 at the price 794 $, then your return would be even lower.
As for Buffett, then his motivation is clear. A month ago, he complained about, that there are no good companies on the market at a normal price. And besides this, that the free amount at the disposal of BRK is close to record values - under $ 150 billion.
Shareholders have long put pressure on him., so that it expands, for "money must work!». And it didn't always have a positive effect.. For example, the purchase of Precision Catparts for 37 billion in 2016 eventually led to the write-off of assets worth 9.8 billion. Maybe, you also remember, how in 2019 BRK lost 25.4 billion due to Kraft Heinz.
Once, in the comments about one startup, someone wrote: "Old Man Buffett wouldn't have invested in that". Well,, the information is out of date: pressure from shareholders led to, that BRK has started investing in monstrously overvalued loss-making startups like Snowflake.
Snowflake with an annual revenue of 265 million claimed during the IPO for a capitalization of 23.7 billion. By the way, BRK's investments in Snowflake showed an increase of almost three times in 2021. Which rather speaks not of Buffett's brilliant serendipity?, and about the almost guaranteed profit on investments in IT startups, who sometimes mislead investors about their sky-high prospects.
Alleghany, like I said, does not look overrated – and will serve as a good addition to the BRK conglomerate, in which the insurance business is one of the pillars of the entire enterprise.
Alleghany shareholders may start to snap and demand a higher sale price.: after all, the company is bought very cheaply. Or there may be another buyer. In this case, BRK will have to bargain, and the deal will no longer look so attractive to shareholders..
In any case, buying Alleghany is a good sign.. This is an indicator of the fact that, that there is a demand in the market for the absorption of inexpensive stable businesses, which allows us to search for such companies and earn on them.
Pot with box office: AMC invests in gold
AMC cinema chain will invest 27.9 million in the gold mining company Hycroft Mining. This case is extremely curious., because it intersects several different topical plots at once.
AMC has two faces. The first person is a network of cinemas, in dire straits due to the perpetual pandemic. Второе — это «мемная» stock, which retail investors successfully pumped up contrary to economic logic and out of spite of technical analysis. Even now, AMC shares are three times more expensive., than before the pandemic, although the position and financial indicators of the company are now several times worse, than then.
Hycroft is a game of chance. Hycroft owns gold and silver reserves in Nevada, USA. Its reserves are estimated at around 22 million troy ounces of gold., which is very, very much.
Truth, the company has not yet started commercial activities and is among the issuers, shares of which can fly as in the stratosphere, and into the abyss, depending on the conclusion of geologists: unknown for sure, how much gold can be extracted from these bowels. And this will become known only in years., and the company may go bankrupt, because she has a lot of debt..
But, given the strong growth in the price of gold as a defensive asset, very possible, that the company will be able to attract even more attention from investors and even start mining, which will be economically justified.
AMC will have a stake in Hycroft 22%, and the purchase occurred in the form of orders: during 5 AMC will be able to get 23.4 million shares of Hycroft at the price 1,07 $ for pike. For understanding: at the time of the news, Hycroft stock was worth $1,52. So the deal is more profitable for AMC, and for existing Hycroft shareholders, not so much.. AMC took the money from that, what earned in 2021 on its shares thanks to the support of retail investors.
Let's not get ahead of ourselves, but in the case of, if Hycroft shows good operating results, AMC investments can grow strongly, maybe even tenfold. And it's not AMC's only attempt to diversify its business.:
- the company now accepts cryptocurrency when paying for tickets, and it has its own NFT sales program. May be, to manage and hedge risks with cryptocurrencies, it will even make a separate unit;
- the company plans to sell popcorn under its own brand.
The company also buys new cinema halls and expands the number of premium halls..
Interesting, that the value of AMC bonds from the news about gold fell, but stocks - rose, which perfectly shows us the depth of the gap between the younger generation of retail investors, guided by emotions and the opinion of "serious uncles in suits", who approach everything from a conventional standpoint.
But it is very possible, that AMC is actually quite rational about cultivating its ties with the retail investor community and plans to make big statements., to stimulate the growth of shares and earn on the issue of new shares to sponsor their projects and diversify the business.
It could seem, that from an economic point of view it is a pure scam, but I believe, that here we are seeing the testing of a new business model: investors earn on business, which they like, and the business itself ensures its existence and development by strengthening ties with this community..
A considerable number of Reddit users, pumped AMC, did it, among other things, and because of sentimental feelings towards the company: it is a well-known favorite brand for people under the age of 40. They bought up shares of the company., to save this business.
If AMC Management Maintains and Strengthens This Link with Retail Investors, then it will be able to stay afloat for a very long time, incurring losses for years and not making a profit.
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