Jump to content

Fairfax 2018


wondering

Recommended Posts

  • Replies 501
  • Created
  • Last Reply

Top Posters In This Topic

 

 

Net Net to be clear it’s not exactly half of Markel book value premium and I am not trying bash Markel I think they are an excellent operation! it is an obvious mismatch in pricing when you look the two side by side....Unless you think Markel is that great and Fairfax is that Bad!

 

 

Link to comment
Share on other sites

 

 

Net Net to be clear it’s not exactly half of Markel book value premium and I am not trying bash Markel I think they are an excellent operation! it is an obvious mismatch in pricing when you look the two side by side....Unless you think Markel is that great and Fairfax is that Bad!

 

With Markel, what you see is what you get. Very straightforward people. Their plan is clear and they walk the talk. With FFH, you get a "Oh, Trump is elected now" kind of line for billions of dollars lost. Huge...huge lack of candor.

 

Remember the "we prefer to be wrong wrong...right than to be right right...wrong" kind of line that we heard for years? What a joke. Finally, it was "wrong...wrong...oh ok Trump!" kind of line. Markel was more like "we don't play that game...we don't play that game...we still don't play that game" kind of line.

Link to comment
Share on other sites

Who has told you that employees are demoralized because the stock price is not skyrocketing or moving higher, faster than Markel?

 

It is up around 6% over the last 12 months + for those who own it as employees they just received a $10 U.S. dividend cheque + for the vast majority, their salary and bonuses eclipse any value that they get from the stock.

 

Now as an investment, it is trading well above book value. Earnings are among the most erratic you will find. They have a nice defensive position but, last time they did and had an opportunity to deploy, they did a combination of sitting on their hands and investing some in USB, JNJ and a few others only to dump them after some appreciation. Then they shorted the market for years and bought Blackberry, SandRidge, Greek stocks and what else? Should I be skeptical about what they will do next time?

 

And he can buyback all the stock he wants above book value, it won't change a thing or the issue which I mentioned for years or a lack of pre-tax operational earnings when you add in all costs: they lose money everytime when there is no capital gains. And because of that and insurance regulation, too little of book value is actually invested in common stocks and businesses which can earn more than treasuries.

 

Think about it this way. You have a brokerage account and you use some margin. However, your interest cost is higher than the dividends and interest that you receive on your holdings. So the only upside possible is through capital appreciation and as we should all know, this is very erratic.

 

Would you pay twice the book value for that brokerage account?

 

Then on top of that, they have restrictions on where they can put the money which you don't and have a complicated business to manage. When the earnings from that business are added to the interest and dividends, it still generates a loss like that brokerage account.

 

Cardboard

Link to comment
Share on other sites

 

 

Cardboard and Partner24,

 

 

That is what I am looking for...you are both correct. Show me the money...anger, disappointment and disbelief that investment team outside of Brian Bradstreet has been soooo bad! Fairfax needs to deserve respect and the investment team has to prove themselves. I think we all get that!

 

The insurance companies, the ability of Fairfax to build new insurance companies with Brian Bradstreet creating bond income over 35 years are undervalued. If Fairfax becomes simple like Markel....which I am obviously betting they are the the time to buy back is now.

 

 

 

If you are talking Apples to Apples compare Markel insurance to Fairfax....Fairfax underwriting has been very good for sometime.

 

Markel 2016 $316m and 2015$429m

Fairfax 2016 $576m and  2015$704m

 

Investment portfolio’s are two to one in size $40b Fairfax and $20b at Markel.

 

Same market cap.....Markel has done well investing and insurance has been solid...the question is will Fairfax do the same?

 

I am betting yes. The math is on their side as the same performance in combined ratio and investment return would be at least double the income for Fairfax over Markel at starting point from these market caps.

 

Iam tired of standing up for Fairfax many of the negative press is deserved!!!!Sooo good luck all...will wait for Prem to walk the walk...no more talk.

 

Dazel

 

 

 

 

Link to comment
Share on other sites

It trades at around 1.25 times book or already a premium being paid for the structure that I have described. However, Dazel and others seem to think it is worth a lot more hence why I used arbitrarily 2 times book.

 

I see people on this website being quite critical of hedge fund and mutual fund managers. Why not the same amount of skepticism when it comes to Fairfax or Markel?

 

And to say that Fairfax should trade higher or at a higher multiple simply because Markel trades there is not sound analysis. Maybe that Markel is just overvalued?

 

I would say that one should be willing to pay a premium for these types of businesses only if they generate pre-tax income from their insurance business alone and the leverage that they are employing is so attractive that it generates outsized returns with average investment performance.

 

Then don't forget about the impact of double taxation or taxes that the corporation will pay then you also. Not the case when you buy a fund or pick your own investments.

 

Cardboard

 

 

Link to comment
Share on other sites

It trades at around 1.25 times book or already a premium being paid for the structure that I have described. However, Dazel and others seem to think it is worth a lot more hence why I used arbitrarily 2 times book.

 

I see people on this website being quite critical of hedge fund and mutual fund managers. Why not the same amount of skepticism when it comes to Fairfax or Markel?

 

And to say that Fairfax should trade higher or at a higher multiple simply because Markel trades there is not sound analysis. Maybe that Markel is just overvalued?

 

I would say that one should be willing to pay a premium for these types of businesses only if they generate pre-tax income from their insurance business alone and the leverage that they are employing is so attractive that it generates outsized returns with average investment performance.

 

Then don't forget about the impact of double taxation or taxes that the corporation will pay then you also. Not the case when you buy a fund or pick your own investments.

 

Cardboard

 

I have no particular issue with FFH's BV multiple (and certainly not its TBV multiple) but I do think the odds of BV growth are decent. I'd rather have my return from growth than multiple expansion.

 

I think there is a huge amount of scepticism about FFH on here. Plus, personally I think they have a better record than most fund managers, better-aligned incentives, the advantage of permanent capital, the ability to be paid to borrow (float), and the opportunity and ability to generate value in operations as well as investing. I have relatively little doubt that FFH will outperform a global index over the long run. Most funds won't, and then they deduct fees. I'd happily invest in their managers at 1x (or 2x!) bv, but not the funds. if I did invest in the funds, I'd invest in one that had a super long term record but a terrible short term one, where everyone was saying the manager had "lost it" and must have just got lucky in the past. Sound familiar? ;)

 

Finally, I'd pay a premium to book if book is going to grow faster than the market. Book value assumes the business is worth no more than what it cost to build. In the case of recent acquisitions that may be fair, but where there are no intangibles it means ascribing no value to people, relationships, reputation etc. Given the combined ratios and the record that seems unfair to me.

 

Link to comment
Share on other sites

 

 

Cardboard and Partner24,

 

 

That is what I am looking for...you are both correct. Show me the money...anger, disappointment and disbelief that investment team outside of Brian Bradstreet has been soooo bad! Fairfax needs to deserve respect and the investment team has to prove themselves. I think we all get that!

 

The insurance companies, the ability of Fairfax to build new insurance companies with Brian Bradstreet creating bond income over 35 years are undervalued. If Fairfax becomes simple like Markel....which I am obviously betting they are the the time to buy back is now.

 

 

 

If you are talking Apples to Apples compare Markel insurance to Fairfax....Fairfax underwriting has been very good for sometime.

 

Markel 2016 $316m and 2015$429m

Fairfax 2016 $576m and  2015$704m

 

Investment portfolio’s are two to one in size $40b Fairfax and $20b at Markel.

 

Same market cap.....Markel has done well investing and insurance has been solid...the question is will Fairfax do the same?

 

I am betting yes. The math is on their side as the same performance in combined ratio and investment return would be at least double the income for Fairfax over Markel at starting point from these market caps.

 

Iam tired of standing up for Fairfax many of the negative press is deserved!!!!Sooo good luck all...will wait for Prem to walk the walk...no more talk.

 

Dazel

 

You've done a great job Dazel and this board have done a great cheerfulness job over the years, especialy when FFH was in their bad years (Peter Eavis, naked shorts, reserves development, bad combined ratios, stock issues, etc.). Now FFH management has less support, and frankly it's well deserved. They get the reaction from their own behavior. It's more difficult to evaluate the intrinsic value of a business when you see both talk and walk changing like that, when you don't know when the top management will dilute your voting (even if shareholders say no the first time), and when you feel that the top management act more like sellers than business partners on the conference calls. 

Link to comment
Share on other sites

Cardboard, you make a very valid point.  Fairfax is slowly tackling this issue by calling and replacing their high yield debt.  I would personally like them to substantially reduce leverage so earnings from their insurance operations will shine with consistent and upward pre-tax operational growth. I am really excited for the number of debt/warrant financing they are undertaking as this would provide that steady stream of FCF along with substantial upside.  I really believe we are at a turning point in the company. (1. Prem unlocking value in First Capital / ICICI  2. improving capital structure 3. debt/warrant investments 4.  holding a ton of cash and waiting to deploy 5. Large share repurchase etc...)

 

And he can buyback all the stock he wants above book value, it won't change a thing or the issue which I mentioned for years or a lack of pre-tax operational earnings when you add in all costs: they lose money everytime when there is no capital gains. And because of that and insurance regulation, too little of book value is actually invested in common stocks and businesses which can earn more than treasuries.

Link to comment
Share on other sites

 

I think we all should have learned that book value is overrated...if you don’t think so study Munger. Buffett followed him...Prem will too (as I said I think he has moved this way but will have to prove it)...when he said Fairfax was cheap...he was not talking about book value...he specifically said the insurance companies are trading well below their intrinsic value and then he showed us by realizing the large gains in ICiCI Lombard and First Capital. In the process he gave up little intrinsic value in relation to earnings as they were very good deals and not really adding much in the way of operating earnings.

 

More importantly for the short term....Fairfax share price is dropping daily...while all other financials are rising. A rare opportunity these days...can’t help but let all of you know...it feels like 2003. (Partner24 thanks for kind comments you have been an MVP to this board keep up the great work!)

 

https://www.cnbc.com/2018/02/01/when-market-says-both-stocks-and-bonds-in-bubble-cash-is-king.html

Link to comment
Share on other sites

 

Yep and there is the spike in interest rates  I was talking about....expect Sir Bradstreet to start buying long dated bonds soon....nice to have $20 billion lying around.

 

Fairfax down again (LOL) and Travelers up!! TRV will have billions in bonds losses and the bond market trillions!!(see previous discussion).....

 

1994

 

Fairfax can not possibly buy back enough stock here...Let’s go Prem

Link to comment
Share on other sites

The Allied World deal is HUGE by FFH...a lot of people are underappreciated the underwriting expertise that Allied will be bring to Corporate...not just in 2018, but FOREVER.  A lot of people have knocked FFH for so-so underwriting ratios; but as a long-standing Allied shareholder I can tell you these guys are top notch.  It was a brilliant move by FFH corporate...

Link to comment
Share on other sites

Value Maven, thank you for posting and sharing that you have been a long term shareholder of Allied. What are your thoughts of the size of the underwriting loss posted by Allied in Q3? I am just starting to follow Fairfax closely (after many years) and one of my watchouts is the size of the lost posted by Allied and Brit in Q3. I am not saying it is an issue; at this point I am just trying to learn more.

Link to comment
Share on other sites

https://www.theglobeandmail.com/report-on-business/fairfax-poised-to-acquire-embattled-carillion-canada/article37851533/

 

"Carillion Canada, which accounts for about 11 per cent or about $1-billion of global revenues".  We are not buying all the Canadian assets so that's a rough idea of the size of this acquisition. 

 

FFH hasn't attached a dollar-value to this acquisition:

 

http://www.fairfax.ca/news/press-releases/press-release-details/2018/Fairfax-to-Acquire-Certain-Canadian-Assets-of-Carillion/default.aspx

 

 

Does anybody have any idea of the magnitude?

 

 

SJ

Link to comment
Share on other sites

The Outland part of Carillion might be a good fit with Cara ?

 

Outland, a Carillion company,  is a leading provider of remote site accommodation and associated services, including camp management, catering, maintenance, housekeeping and tree planting to public and private sector customers across a wide range of industries, such as mining, utilities, forestry, oil and gas. This partnership complements the existing skills and capabilities of Carillion's support services business and enhances prospects for growth of our support services activities for clients across Canada.  For more information on Outland, please visit: www.outland.ca.

Link to comment
Share on other sites

https://www.theglobeandmail.com/report-on-business/fairfax-poised-to-acquire-embattled-carillion-canada/article37851533/

 

"Carillion Canada, which accounts for about 11 per cent or about $1-billion of global revenues".  We are not buying all the Canadian assets so that's a rough idea of the size of this acquisition. 

 

FFH hasn't attached a dollar-value to this acquisition:

 

http://www.fairfax.ca/news/press-releases/press-release-details/2018/Fairfax-to-Acquire-Certain-Canadian-Assets-of-Carillion/default.aspx

 

 

Does anybody have any idea of the magnitude?

 

 

SJ

 

 

 

Hmmm.  Well, If it has ~$1b in revenues, would that be ~$200m in EBITDA?  If gross margins are ~20% then FFH can't really pay much more than the $750m debt that Carillon's Canadian operations owe.  I mean, you might be able to do 5X or 6X ebitda (ie, $1B or $1.2B), but 10X would be outrageous?

 

 

SJ

Link to comment
Share on other sites

But they are not buying ALL of Carillions operations...

 

 

Yes, but if I've understood correctly, the Cdn ops had rev of ~$1B.  Then I've gone the next perilous step of inventing an EBITDA margin and slapping some hypothetical multiples on it, and finally comparing it to the ~$750m of Carillon's Canadian debt. 

 

The only purpose of that exercise was to guess at the amount of cash going out the door from FFH.  So, can we assume that FFH guarantees the $750m of debt and throws maybe $250m of cash at the parent?

 

 

SJ

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now



×
×
  • Create New...