glider3834

https://www.theinsurer.com/viewpoint/embracing-2024-allied-worlds-european-platform/ “Our growth is not just about expansion, but about strategic adaptation. I joined Allied World in 2008 and have witnessed an amazing transformation from a small team to a global force, with $6.5bn in gross written premiums, over 1,600 employees and 26 global offices.” For the European operations, the focus has been growing the teams and the business in a measured, profitable way.

Looking at GIG transaction again, I believe based on fair value of acquisition consideration, Fairfax is effectively paying ~ P/B 2.2x for Kipco's stake. 100% implied equity value for GIG based on below is ~US$1.63B & GIG's shareholder equity at 30 Sep-23 was ~US$742.5M, which works out to implied P/B multiple of 2.2x US$756M fair value of acquisition consideration is lower than US$860M headline number for two reasons 1. Initial US$200M upfront, cash payment is to be reduced by dividends Kipco received after 1 Jan'23. 2. Fairfax also has a payment deed for four annual instalments of US$165M (or US$660M) in aggregate which Fairfax records at its fair value ie discounted present value. At 30 Sep-23, Fairfax measured the fair value of acquisition price at US$740M - this has now increase slightly to US$756M at the time of closing. But the workings for how this US$740M is calculated is shown below & helpful.

Looking at income from associates & non-insurance subs, its worth thinking about Grivalia Hospitality & BIAL which are significant investments. IMHO we haven't seen their normalised earnings/cash generation power reflected in Fairfax's results yet, because both have just completed major capex investment projects in 2023 & as they ramp up they are still operating below capacity in terms of passenger traffic (BIAL) and in terms of occupancy (Grivalia). Grivalia only opened the doors on its biggest resort this November https://www.linkedin.com/pulse/what-does-prem-watsa-gain-from-greek-tourism-thetotalbusiness Also Fairfax has increased its ownership share in both businesses over the last 12 mths -so I am hoping in AR to see some clues as to how these might contribute to results in the coming year/s.

I assumed no reinvestment of divs (eg assume you pop dividend money in a no interest account each year and leave it there and add it to your share gains over period) - which appears thats how Fairfax got their CAGR calc of 11.7% for 2017-2022 but feel free to double check. You do see total return measures that include reinvested divs, so I think assuming no reinvestment like Fairfax do is more conservative.

So Fairfax's book value per share (BVPS) CAGR growth (incl dividends) for 2017-2022 period was 11.7% If we now update & look at 2017-2023 period, I get BVPS CAGR (incl dividends) as 15.5% Calc below =(1009.65*/367.4)^(1/7)-1 = 15.54% *2023 YE BVPS 939.65 + 70 divs = 1009.65

I was hoping a silver lining with all this, is Fairfax delves a bit more into telling us about its private businesses including AGT - but lets see

- so appears no questions on Digit valuation specifically or IFRS 17 from what I can see - MW thinks that Warren Buffet wouldn't have paid the same multiple for Gulf Insurance so Fairfax must have overpaid - I think this is speculating. Also Warren Buffet reportedly paid a higher multiple of 2.86xBV to minority interests to take control of Geico. to https://www.washingtonpost.com/archive/business/1995/12/04/a-23-billion-question-on-buffetts-geico-buyout/0c880b8a-d509-4121-b2ac-e50c28a7603a/ Gecio shareholders, she said, got a buyout price of 2.86 times Geico's book value of $24.44 per share as of June 30. The average price recorded for other deals involving property-casualty insurance companies, she said, has been only 1.5 times book value. Book value is a measure of a company's intrinsic value.

this is interesting, I didn't realise this but apparently Carson Block is the founder of zeroes tv where he did his interview on Fairfax https://www.zer0es.tv/about-us/ About Carson Carson Block, founder of Zer0es TV, is a successful short-seller who has spent his career calling out corporate frauds, through his company Muddy Waters Research. From lawyer to hedge fund researcher and entrepreneur, Block’s experience, particularly in China, laid the foundation for his prominent short-selling career.

It looks like Fairfax's take private, acquisition offer of CAD $20.73 (US$15.30) for Recipe was within the fair market value range provided by independent valuators Greenhills (see below) who were appointed to give a fairness opinion on the transaction to Recipe's Sellers/Minority Shareholders ie not Fairfax. The offer price also appears to be close to the mid-point of the discounted cash flow (DCF) analysis valuation for the Recipe's shares and this is what Fairfax use for their market price for Recipe for FY2022.

the repurchase of minority interests in Allied World in 2022 (highlighted in yellow) reduced book value, but I can't find this in MW report

Here is a press release for Watsco on morningstar site & the underlined words are also missing as well - so it looks like this is a system wide issue https://www.morningstar.com/news/globe-newswire/9036198/watsco-reports-strong-2023-performance-gaining-share-in-a-soft-market-boosts-annual-dividend-10-to-1080-per-share from watsco site https://www.globenewswire.com/en/news-release/2024/02/13/2828098/0/en/Watsco-Reports-Strong-2023-Performance-Gaining-Share-in-a-Soft-Market-Boosts-Annual-Dividend-10-to-10-80-Per-Share.html

it could be coding error

I would suspect CAD weakening close to 1% against USD

I just sent an email to morningstar as well

well picked up - I highlighted in yellow from original press release from Fairfax below

yep the narrative - I looked at the chart & thought it looked odd

great response- liked '“We are neither Berkshire Hathaway, nor GE, as Muddy Waters suggests. We are Fairfax..."

Looking at MW chart table below for years 2017-22 - how does that reconcile with Fairfax's number from their 2022 Annual report for 2017-22 period? Or am I missing something?

cheers Viking - looks like Fairfax were carrying the equity portion of 58% AGT stake at $57M in 2020 & then in 2022 it is potentially included in 'other consolidated' category but we can't confirm as this is not broken out 2020 AR 2022 AR

Looks like Chou Associates Mgmt retained Kroll LLC to provide an independent valuation of their Exco shares at 31 Dec-22 & mean price was US$21.08 per share. This is above Fairfax's carrying value of Exco of US$12.59 per share at 31 Dec-22. https://www.osc.ca/en/securities-law/orders-rulings-decisions/chou-associates-management-inc-and-chou-associates-fund-0 See below comment on OTC market pricing of Exco shares

From a valuation perspective, here is an interesting recent M&A/transaction comp for Digit. In Nov-23 Zurich agreed to acquire 51% of Kotak General Insurance for US$487M for an implied valuation for 100% of Kotak General Insurance of ~US$955M https://asiainsurancepost.com/archives/48809 https://yourstory.com/2023/11/zurich-insurance-to-buy-51-pc-of-kotak-general-insurance Digit is writing about 5x more GPW than Kotak YTD & 4x more GPW for current month. Digit has ~2.76% market share vs Kotak's ~0.52% mkt share according to recent flash figures below (below) - Digit's YTD growth rate is 32% vs Kotak's 41%, but Kotak is also coming off a smaller premium base.

https://www.godigit.com/digest/stories/digit-funding-press-release The key word is IFRS - Fairfax reports Digit results under IFRS but Digit reports under Indian GAAP. As per below, there are 'significant differences'. Below Digit indicate that they cannot by law include IFRS Financials in their IPO Prospectus (excerpt below), but they plan to make IFRS financial data available after IPO for ease of comparison with other global companies in the same industry.

I think where it was similar was more on quant side but learnings with Fairfax have been more on qualitative side - importance of quality of management and corporate culture I had a re-listen to Ian Kelly point on mean reversion skepticism - I think what he is saying is that as they look under the hood at the cheapest subset of value stocks in Europe they are seeing more companies that have genuine problems ie they haven't just underperformed (relative to growth ) purely due to slower growth (ie cyclical factors) but other underlying drivers of business performance have changed - so they wouldn't expect the margins to mean revert as economy gets better ie the underlying value has degraded (my word) in a sense - thats my 2 cents worth take anyway...

this looks like an interesting article if you are a subscriber https://www.insuranceinsider.com/article/2csob28o7eht496cy1tz4/london-market-section/brits-thompson-resetting-for-a-lead-position