Nigel Woodman

A pilgrim on life's path

[Nigel Woodman @NigelWoodman]

@EuropoorValue @SouthernValue95 Good one, $FFH.TO is an elegant way to globally diversify insurance exposure on the cheap while the market obsesses over a soft market in NA 👍

[Nigel Woodman @NigelWoodman]

It’s not even that they/he got things wrong, that happens. It is more the lack of demonstrable corporate evolutionary arc. Perhaps that is changing and I will be watching carefully. However I don’t regret rotating my $MKL position into $FFH.TO. The changes under the hood at Fairfax are quite profound and are a constant work in progress. Al ot more walking than talking as they say 👍

[Nigel Woodman @NigelWoodman]

Nothing “wrong” with him. My unease is epistemic accountability. Gayner explains the philosophy beautifully, but I struggle to trace thesis → capital allocation → expected return → outcome → lesson. After listening for an hour, do I know why Markel should earn excess returns on the next dollar? When your board then hires consultants to review structure, capital allocation and disclosure, that question gets harder, not easier.

[Nigel Woodman @NigelWoodman]

True and such a none issue at the current discount to IV. Let’s see how the market views this in 12-24 months time. I have a sneaking suspicion that it may look like a different beast. My only concern is that the super El Niño may have a serious impact on the Indian economy in the short term.

[Nigel Woodman @NigelWoodman]

@TidefallCapital If anything, this only strengthens my resolve to stay as far away from ground zero as possible 👍

[Nigel Woodman @NigelWoodman]

@Bulls_Brew @The_Real_Fly First thing that came to my mind too. More like a kiss of death than an endorsement.

[Nigel Woodman @NigelWoodman]

Interesting take. I would have guessed Reign in Blood would get the #1 spot. However, I must admit that when I need a Slayer fix, I invariably reach for Seasons in the Abyss, so I feel somewhat vindicated. Either way, we grew up listening to the top three on repeat. That first listen to Reign in Blood was a seminal moment though 👍

[Nigel Woodman @NigelWoodman]

@wabuffo Great work Bill 👍

[Nigel Woodman @NigelWoodman]

A quick basis for the €71/share on a probability-weighted IV.

I don’t think you need to believe the whole €2bn EBITDA story to get there. On a fairly conservative SOTP, I get to about €64/share today. That gives sensible value to Utility, M RESET, aluminium/alumina, Defence, Infrastructure and some credit for gallium/Circular Metals, then deducts reported net debt and the usual corporate bits.

The interesting bit is the probability distribution. I’m roughly at 15% bear around €40, 45% base around €64, 30% at €85 and 10% around €110. That gets you to about €71.

The €85 case doesn’t need anything heroic. It really just needs METLEN to keep doing what H1 suggests it may now be doing: better cash conversion, leverage staying sub-2x, Metals benefiting from progressively better hedges, Defence moving toward the €150m target, gallium being worth more than the original CMD case, M RESET continuing to execute, and ideally the company getting to Investment Grade.

The €110 case is where you need much more to go right: Circular Metals working commercially, gallium remaining genuinely exceptional, something close to €2bn EBITDA becoming underwritable and the credibility/conglomerate discount narrowing materially.

That’s the key change for me. I’m not really giving METLEN higher multiples. I’m giving higher probabilities to outcomes that already existed in the thesis. 12 months ago a lot of this was PowerPoint and management ambition. H1 has started to turn some of it into cash, operating budgets and physical delivery. So I’d frame it simply:

€64 is roughly what I can see today. €71 is what I get after giving some probability to what is increasingly becoming visible.

[Nigel Woodman @NigelWoodman]

Some quick thoughts on Metlen’s ($MTLN) H2 results.

METLEN has been something of a roller coaster to value over the past year. My IV has moved with the evidence. The FT Alphaville pieces crystallised three legitimate concerns: poor cash conversion, leverage, and accounting/JV opacity. I subsequently cut my IV because valuable assets are worth less if reported EBITDA continually disappears into working capital, capex and debt. However I think H1 begins to answer some of those questions.

METLEN generated >€800m operating cash flow and reduced adjusted leverage from 3.1x to 1.7x. More importantly, the analysts asked the right questions in the CC 👍

Morgan Stanley asked where the working-capital improvement came from. CFO Fotini Ioannou identified cash conversion from Utility and Aluminium, asset rotations, collection of overdue receivables and customer prepayments. So we certainly shouldn’t annualise €820m it is a step in the right direction.

BofA then went directly at the issue:

“Do any of these working capital moves need to reverse?”

Ioannou:

“Not at all, Jason. No. Not at all.”

Management expects leverage to remain around current levels despite higher H2 capex, dividends, tax and interest. That matters enormously for the path to Investment Grade, which I continue to regard as more important than maximising the €600m buyback. METLEN now has €5bn liquidity and doesn’t need to refinance its €500m October bond. Sustainable sub-2x leverage while funding growth would materially change the cost-of-capital story.

I think the businesses are also becoming easier to underwrite.

Utility: EBITDA +8% despite lower wholesale electricity prices and specifically identified as a strong cash generator.

M RESET: ~2.5GW of asset-rotation projects under construction, increasingly pre-sold, while the mix shifts from standalone solar toward batteries/hybrids.

MPP: still not clean. BofA reminded management that these projects were supposedly provisioned last year, yet H1 took further charges. Ioannou nevertheless says:

“I think the worst is behind us.”

Physical completion milestones increasingly support that claim.

Metals: hedges improve through 2028. Mytilineos:

“without gallium, the results of the metals sector is going to surprise the market community very much.”

Gallium: perhaps the most interesting development. CMD assumed ~€40m EBITDA around $800/kg; current high-end pricing is ~$3,250/kg. The first buyer insisted on a price cap “way above the current prices”, while Mytilineos says METLEN could sell “200 tons if we had” them.

Defence: moving from PowerPoint to something measurable: ~€12–15m EBITDA in 2025, ~€30m in 2026 and a first-draft €85m 2027 budget.

Infrastructure: €82m H1 EBITDA and >€2bn backlog.

Not everything is resolved. Contract assets have actually risen to €2.26bn. JV/Karmet transparency remains imperfect. Governance/key-man risk remains. And another MPP charge would hurt credibility. So I am not removing the discount but a reduction is warranted because the probability of successful delivery has increased.

Updated probability-weighted IV: ~€71/share.

The FT criticism was useful. It forced better questions. H1 matters because some of those awkward questions are finally getting better answers. I am not shying away that this is a tough business with lots of moving parts but H2 and the subsequent guidance means a few of the question marks have lifted.

A final thought:
Circular Metals may ultimately be the bigger opportunity than gallium. Mytilineos called it METLEN’s “best bet”, arguing that the real prize is the much larger volumes available from extracting critical metals from waste. The Thessaloniki plant is commissioning and first high-purity oxides are expected in 2027. The commercial economics are not yet proven, so I still apply a large probability haircut. The engineer in me says this will be a tough nut to crack but they stand a better chance than most.

[Nigel Woodman @NigelWoodman]

@ACIPartnerhship Good thread, James. Feels like there’s a bigger idea behind it. Is something weighing on that big brain of yours, or are you just musing?

[Nigel Woodman @NigelWoodman]

Ostensibly, yes. But the more important question isn’t whether rates rise; it’s the consequences. A deliberate rate hike is a policy instrument. A rise in long-end yields driven by policy uncertainty or reduced credibility is a risk premium. The first tightens by design; the second tightens by increasing the cost of uncertainty. Same headline outcome, but very different implications for capital allocation and the broader economy. There is also a “kindness of strangers” aspect to the Fed’s credibility. It rests on the willingness of investors to finance the United States at reasonable rates. That confidence may be being traded for short-term political expediency, a risk I’m sure Chris acknowledges.

[Nigel Woodman @NigelWoodman]

@TidefallCapital Good times

[Nigel Woodman @NigelWoodman]

@business Very sad news. RIP Nims 🇳🇵

[Nigel Woodman @NigelWoodman]

Unintended consequences spring to mind and yet another FAFO moment for this administration. I’ve only read the excerpt you posted, but if Chris is arguing that this is clever policy, I beg to differ. The bond market is effectively saying: “You may control the appointment, but you do not control the price at which we finance the United States.”

[Nigel Woodman @NigelWoodman]

@JerryCap @Larryjamieson_ Certainly feels that way. The machines are far more manic than anything I can recall in nearly 30 years of investing. Couple that with any form of non-permanent capital that relies on “the kindness of strangers,” and I’m sure Terry won’t be the last.

[Nigel Woodman @NigelWoodman]

@FLCons Is that supposed to be a cardinal or an isolated danger mark? It looks more like an after thought!

[Nigel Woodman @NigelWoodman]

I think that may change under Greg. One can hope anyway. It’s one area of the capital allocation machine at $BRK.B that bordered on irrational (IMHO). I know it was designed to appeal to a certain type of deal flow, but not sure it helped that much. I much prefer $FFH.TO’s rigorous hurdle and capital recycling model. We shall see if their last few deals, KW, SN and AP actually make the grade. It’s not 100% obvious to me at this stage but they have much bigger brains so I give them the benefit of the doubt….but I am watching very closely 👍

https://t.co/JTPfOzdr9g