FFH vs FIH.U

[ICUMD]

Hi - looking to get opinions on the prospects of FFH vs FIH.U.  Which is currently the better investment over the long run?  Which has more risk?

 

My thoughts:

 

I like the new acquisitions of FIH.U.  They seem to be solid industries in India, which may have lower risk than many of the investment holdings of FFH. Although, some have tremendous debt associated with them (ex. BIAL). I am unclear about the debt reduction approaches Fairfax will employ to mitigate these risks. Also, India I think will enjoy a faster growth rate than many of the businesses of FFH.  From a valuation perspective, although it is still early, FIH.U seems to be undervalued.

 

On the other hand, I like the insurance float of FFH which is obviously absent in FIH.U.  From a valuation perspective, FFH may be a bit overvalued.

 

Would be interested in opinions!

 

Cheers.

 

 

[dartmonkey]

That's an easy one. FFH (market cap $14B US)  is a safe bet, reasonably priced, long track record, depends mostly on the performance of its insurance businesses which have been doing quite well in the last 10 years or so.

 

FIH is a comparatively tiny ($1.5B) India-specific fund that hopes to profit from Fairfax's good business connections in India and the improving economic prospects there. It has next to no track record, even if its managers have experience in India. The fund consists mostly of $1b in investments they have made there in the past year, plus $500m in cash that they just raised. It has a much higher potential for higher returns, but is also far more risky. It pays a 1.5% commission to FFH, plus a fifth of capital gains beyond 5%, so this is a potentially lucrative side business for Fairfax, if they can convince investors that they are good capital managers in India.

 

If you are not familiar with the company, I suggest you start with last year's annual report: http://s1.q4cdn.com/293822657/files/doc_financials/annual_reports/Final-2015-Annual-Report.pdf.

 

I have a big position in FFH and a small one in FIH, bought at $10; I have enough at $11.25, but I think it is a fair price today, and it might be a good fit for someone who, like me, thinks they have a good chance to do well in India and wants to add some exposure there without the trouble of purchasing individual securities and becoming familiar with rupees, lakhs and crores.

 

Regards, DTB

[ICUMD]

Certainly very valid points.  I've taken out a large position in FIH.U (Avg about 11.50) and a smaller one in FFH which I hope to build over time.  Perhaps I am speculating and highly hopeful on the upside.  The quarterly revenue for FIH.U was quite impressive and I feel it is trading at low multiples.  Given that book value is about $10, it is trading at or very close to book value minimizing downside risk.  As far as I can tell, it is also carrying very little debt (although I am not certain of this).  It will be interesting to see if FIH.U can match its parent's historic returns.

[buylowersellhigh]

any takeaways from Fairfax India's AGM?

[ICUMD]

I didn't attend the AGM but also would be very interested in thoughts.  I've so far been pleased with the FIH.U performance this year.  Certainly more so than FFH.

 

I also feel that FIH.U may confer better protection in a stock market downturn than FFH. 

 

Exciting times :)

 

R.

[dartmonkey]

Given that book value is about $10, it is trading at or very close to book value minimizing downside risk.  As far as I can tell, it is also carrying very little debt (although I am not certain of this).  It will be interesting to see if FIH.U can match its parent's historic returns.

 

 

I'm not so sure that trading near book value is very much protection. Book value just means the stuff they bought (mostly minority stakes in Indian firms) is trading at about the price where FIH bought it. There is nothing stopping those holdings from going much lower; THOSE HOLDINGS are not trading at book value, i.e. they could not be liquidating for anything close to their market value. The riskiness of FIH is largely a function of the riskiness of the stuff they have bought, and that can not be gauged by a comparison of FIH's share price with FIH's book value.

[petec]

FFH will be much safer in a downturn.  Largely developed-market related with plenty of cash.  FIH is an (excellent) emerging-markets holding company.  I think it will do well, but the potential for the share price to fall in a downturn is significant.

[ICUMD]

Some great points - its true, its hard to fully understand the value of the FIH holdings.  I suppose the proof will be in the performance over the coming quarters.

 

Still, one of my more confident holdings.

 

R.

[dartmonkey]

Some great points - its true, its hard to fully understand the value of the FIH holdings.  I suppose the proof will be in the performance over the coming quarters.

 

Still, one of my more confident holdings.

 

R.

 

Don't get. wrong, I am also quite confident and think they have made some great investments. I am just saying there is nothing stopping those investments from dropping in price quite a bit, and this would almost certainly result in a steep drop in FIH's share price.

[petec]

I notice IIFL has doubled ytd.  Mind you, sounds like a phenomenal company and is still "only" on 18x 2018.

[ICUMD]

Wow - just saw the chart on IIFL - what a rise!

 

FIH in at under 200 inr/share.

IIFL at 500 on an exponential growth curve.

[petec]

Yes - and outside FIH, Quess has gone mental since its July 2016 IPO and now accounts for 80% of Thomas Cook India if I've done the maths right.  Which means a) TC stub is cheap; b) Fairfax is sitting on a nice gain; and c) maybe just maybe they really know what they are doing in India.

[ICUMD]

Great earnings release in an otherwise down cdn market.  Seems like they know what their doing.  ☺