Fairfax stock positions

[dochood]

9 hours ago, SafetyinNumbers said:

I don’t think a sum of the parts valuation is useful. The non-insurance companies are the equity investments of the insurance subsidiaries. It’s easier to think about the range of returns for the $75b investment portfolio. Historically it’s been ~7%+. We know leverage is ~3:1 and with two thirds of the portfolio earning 5%, it means the equity portfolio has to put up an 11% return to hit the 7% bogey. That’s a 21% pre-tax ROE before underwriting income and head office expenses/financing costs. 
 

10% for the equity portfolio is a 15%+ ROE after tax for the company assuming underwriting is profitable. It’s not important what the current income of the equity portfolio is when trying to understand the difference between fair value and carrying value. If we start with the biggest position and work our way down, we can quickly see that big parts of the portfolio are earning returns well above 10%. In fact our biggest position which is over 10% of the equity book, Eurobank, earns ~20% on our carrying value which means the rest of the portfolio has a lower hurdle rate to achieve 10% and that increases the probability it’s achieved.

+1

[Viking]

Eurobank's Q4 and FY 2025 results are out. Another strong year (although I have no idea how Mr. Market will respond to results tomorrow). The management team at Eurobank is stellar. Their strategic vision and execution has been very strong over the past 5 years. We are now seeing their plan coming together: "A Three-Markets, Three Business-Lines Financial Group (see first slide below)

 

The company also provided their 3 year strategic plan - it looks very good. And these guys have a long history of sandbagging their forecasts (they usually beat) - one of the many reasons I like them so much. See slide 2 below. 

 

The presentation is so well laid out - it makes if very easy to understand where the company is today and where it plans to go in the future. See link below. 

 

Eurobank is going to be continuing to returning an enormous and growing amount of money to Fairfax in the coming years (dividends).    

 

https://www.eurobank.gr/en/group/investor-relations/presentations

 

 

Edited February 26 by Viking

[Txvestor]

43 minutes ago, Viking said:

Eurobank's Q4 and FY 2025 results are out. Another strong year (although I have no idea how Mr. Market will respond to results tomorrow). The management team at Eurobank is stellar. Their strategic vision and execution has been very strong over the past 5 years. We are now seeing their plan coming together: "A Three-Markets, Three Business-Lines Financial Group (see first slide below)

 

The company also provided their 3 year strategic plan - it looks very good. And these guys have a long history of sandbagging their forecasts (they usually beat) - one of the many reasons I like them so much. See slide 2 below. 

 

The presentation is so well laid out - it makes if very easy to understand where the company is today and where it plans to go in the future. See link below. 

 

Eurobank is going to be continuing to returning an enormous and growing amount of money to Fairfax in the coming years (dividends).    

 

https://www.eurobank.gr/en/group/investor-relations/presentations

 

 

Looks like they have a small Luxembourg Private banking/wealth management office they are developing as well. 
The way I read it. They had a flat year earnings wise. Mainly because their net interest rate margin drifted lower by about 0.3% throughout the year. They tried to make that up with loan growth which was solid, expansion in new markets eg Cyprus and Bulgaria and developing their wealth management division. I think they reported ahead of expectations. 
The euro life acquisition should add earnings in 2026 although this would be offset by what I thought they said was $100 million annual fee they were receiving. 
They seem especially bullish for the next two years and guided for 10% annual EPS growth. Hitting $2.3B Core operating profit by 2028. Loan loss provisions seem very much in check and the booming Greek economy should keep loan demand solid. So I think those numbers are achievable. 
They're guiding to a 55% return of earnings to shareholders. Which I think means the dividend currently at 3.2% will be rising likewise. However, in Fairfax's case since they have to keep selling down their shares with the 33% mandatory cap, they will collect their prorata share of that share buy back money as share sales. They bought back ~€230M last year. So I'm thinking they get about €200M back in dividends and share sales annually. With share price appreciation above that.

Edited February 26 by Txvestor

[Marco Van Basten]

According to Bloomberg, the company beat analysts' forecast.  E 1.41bn adjusted net income reported vs E 1.39bn estimate. 

[Hoodlum]

I came across this credit rating for The Keg where they were issuing a $200M note to pay off existing loan and revolving credit facility.  It does provide some detail on how they plan to grow The Keg.  What is interesting is that when refer to LFG managing expertise, LFG is only referred to as a minority owner.

 

https://dbrs.morningstar.com/research/468876

 

 

Edited February 26 by Hoodlum

[Marco Van Basten]

I listened to call, they seem very bullish.  

[Viking]

23 hours ago, Viking said:

Eurobank's Q4 and FY 2025 results are out. Another strong year (although I have no idea how Mr. Market will respond to results tomorrow). The management team at Eurobank is stellar. Their strategic vision and execution has been very strong over the past 5 years. We are now seeing their plan coming together: "A Three-Markets, Three Business-Lines Financial Group (see first slide below)

 

The company also provided their 3 year strategic plan - it looks very good. And these guys have a long history of sandbagging their forecasts (they usually beat) - one of the many reasons I like them so much. See slide 2 below. 

 

The presentation is so well laid out - it makes if very easy to understand where the company is today and where it plans to go in the future. See link below. 

 

Eurobank is going to be continuing to returning an enormous and growing amount of money to Fairfax in the coming years (dividends).    

 

https://www.eurobank.gr/en/group/investor-relations/presentations

 

 

 

Fairfax's investment in Eurobank is up +$5B (559%) over the past 5.2 yrs (up $700M YTD). Much of gain (~$2.7B, or ~$125/sh) is not captured (yet) in accounting results. So it is ignored (not reflected in share price). This is a great example of how significant hidden value is building at Fairfax.

 

Eurobank is now ~20% of Fairfax's equity portfolio. But this number is misleading. This uses Eurobank's market value of $5.45B. But if we use carrying value of ~$2.75B (what matters when looking at BVPS), Eurobank is only 10% of Fairfax's equity portfolio. (Can anyone guess why this matters? That is a story for another day.) 

 

The more important story is Eurobank is exceptionally well managed and is very well positioned to continue to drive strong results over the next 3 years. Eurobank is exceptionally well managed. And we just got an updated three year plan from the team there.

 

I don't think it a stretch to estimate that Eurobank can deliver a total shareholder return of 15% on average over the next three years (increase in MV + dividend). That is $750 million in value creation for Fairfax (using $5B MV as our base). That looks quite conservative to me.

 

Does it matter where the gain happens? It certainly does to Mr. Market (if it doesn't show up in the accounting results it is ignored). It doesn't matter to me (if much of it shows up in excess of FV over CV). Because at some point, Fairfax will sell some of its stake in Eurobank. But given the current set up, it makes a lot of sense to let the Eurobank position continue to run.

 

Eurobank is a great example of how a significant amount of value is 'quietly' building at Fairfax - hidden from Mr. Market. Hope it continues...  

 

Does its size matter? Given it is ~20% of the total equity portfolio is this becoming a reason to sell some? That would be a great problem to have.    

 

 

[SafetyinNumbers]

26 minutes ago, Viking said:

Because at some point, Fairfax will sell some of its stake in Eurobank.

Fairfax is selling about ~130-140k shares a day at these prices as they participate in their share of the buyback. Doesn’t really move the needle on the position size but it’s another source of gains that analysts are ignoring while earnings power is increasing. 
 

 

 

[dartmonkey]

 

Yes and no. Eurobank's change in MV is not captured, but Eurobank does make a pretty significant contribution to EPS and ROE. As an associate holding, Eurobank contributes Fairfax's share of its earnings, so in 2025 Fairfax will have booked about 32% of Eurobank's E1349m in earnings, about US$510m (2024Q4 to 2025Q3, with one quarter delay). The fact that Fairfax's equity stake is only carried at $2750m means that ROE will be doubly juiced by Eurobank's contribution, and those $25/share earnings made a pretty big contribution to Fairfax's $214/share overall earnings. Someone correct me if I have miscalculated, but I think that's right.

[Hoodlum]

AGT has updated their prospectus.  One item I noticed is a $200m private placement by Fairfax. 

 

https://www.sedarplus.ca/csa-party/records/document.html?id=40ad68f0892d309654fcd49e8649c338eb67be655ad0c498cca6a12a1a93ed86

 

Certain affiliates of Fairfax Financial Holdings Limited (collectively, “Fairfax”) have agreed, concurrent with the closing of the Offering (the “Closing”), to purchase an aggregate of ● Common Shares (the “Fairfax Private Placement”) on a private placement basis, at the Offering Price, for gross proceeds of approximately $200,000,000

Edited February 27 by Hoodlum

[Hoodlum]

Now we know why Fairfax did a private placement.  The AGT IPO will go for $23/share.  
 

https://www.newswire.ca/news-releases/agt-food-and-ingredients-inc-announces-pricing-of-initial-public-offering-and-concurrent-fairfax-private-placement-of-common-shares-872634784.html

 

Edited February 28 by Hoodlum

[SafetyinNumbers]

4 hours ago, Hoodlum said:

Now we know why Fairfax did a private placement.  The AGT IPO will go for $23/share.  
 

https://www.newswire.ca/news-releases/consumer-products-retail-latest-news/consumer-products-retail-latest-news-list/

 

The IPO definitely did not go well but my guess is at $23, the dividend yield might be in line with the cost of debt after taxes. I assume the investment will be made in the insurance subsidiaries though. Still a nice switch from cash on an after tax cash flow basis, is my guess.

[netcash1]

How many shares will be outstanding post IPO?  IE what is the market cap?

 

thank you

[djokovic1]

Please correct me if I am wrong but isn't there an added hidden advantage of carrying Eurobank at book value vs market value. I.e because you have to hold a certain amount of book equity against your investments.

So if Eurobank is accounted for in Fairfax accounts at book value they have to hold less equity against the investment relative to if it had been held at market value. If this is true it's a significant advantage. Because you can use that additional equity towards other investments.

And at the same time, the economic value is accumulating and will be realised whenever they sell a portion of their Eurobank stake.

In other words the amount of regulatory capital you have to hold is based off accounting book value, and with the Eurobank example they have to hold less capital as its accounted at book value rather than true economic value?

[SafetyinNumbers]

8 minutes ago, djokovic1 said:

Please correct me if I am wrong but isn't there an added hidden advantage of carrying Eurobank at book value vs market value. I.e because you have to hold a certain amount of book equity against your investments.

So if Eurobank is accounted for in Fairfax accounts at book value they have to hold less equity against the investment relative to if it had been held at market value. If this is true it's a significant advantage. Because you can use that additional equity towards other investments.

And at the same time, the economic value is accumulating and will be realised whenever they sell a portion of their Eurobank stake.

In other words the amount of regulatory capital you have to hold is based off accounting book value, and with the Eurobank example they have to hold less capital as its accounted at book value rather than true economic value?

I’m not sure about the regulatory ramifications but from an accounting perspective, ROE is higher because Fairfax has a ~20% return on carrying value. If it was marked up we would get a one time benefit in ROE but post that ROE would then be lower all else being equal. 

[djokovic1]

20 minutes ago, SafetyinNumbers said:

I’m not sure about the regulatory ramifications but from an accounting perspective, ROE is higher because Fairfax has a ~20% return on carrying value. If it was marked up we would get a one time benefit in ROE but post that ROE would then be lower all else being equal. 

 

Agreed. It may be a different perspective of making the same point.

 

I.e the 75bn investment portfolio is understated because it accounts for Eurobank at book value. The true economic value of that portfolio is higher (by the delta of economic value vs book value in total). As a result the true investment leverage is actually higher than what we calculate using accounting numbers.

As a thought experiment, if all there investments were held at book value similar to Eurobank, then accounting numbers would look much worse (till they sold those investments). But if you were truly a very long term investor and didn't care about the accounting numbers you would want as large a % of the portfolio held at book value like Eurobank rather than mark to market. Because it allows you to run with a higher economic leverage relative to your equity (assuming those investments trade above book value in aggregate) and hence obtain a higher ROE compared to if all your investments were M2M.

I am not 100% sure the above is true, but it is my understanding at the moment. Maybe a good question for the AGM.

 

Edited March 1 by djokovic1

[gfp]

46 minutes ago, djokovic1 said:

Please correct me if I am wrong but isn't there an added hidden advantage of carrying Eurobank at book value vs market value. I.e because you have to hold a certain amount of book equity against your investments.

So if Eurobank is accounted for in Fairfax accounts at book value they have to hold less equity against the investment relative to if it had been held at market value. If this is true it's a significant advantage. Because you can use that additional equity towards other investments.

And at the same time, the economic value is accumulating and will be realised whenever they sell a portion of their Eurobank stake.

In other words the amount of regulatory capital you have to hold is based off accounting book value, and with the Eurobank example they have to hold less capital as its accounted at book value rather than true economic value?

 

I was going to write out a thing but instead I'm going to drink this glass of wine and let Gemini point out the misunderstanding ->

----------AI CONTENT BELOW THIS LINE ---- BEWARE!! ---- AI IS A BUBBLE AND SHOULD BE IGNORED ---------

 

Here is a straightforward breakdown of why holding an appreciated asset at carrying value (book value) is a mathematical disadvantage for an insurer's capital position:

The Math: Book Value vs. Market Value

Insurance regulators (like OSFI in Canada or the NAIC in the US) determine an insurer's capital health by comparing their Available Capital to their Required Capital. Regulators assign a "risk charge" to different asset classes. For standard equities, this charge is usually around 30% to 40%.

Let's use a hypothetical example where an insurer buys an equity stake for $100, the regulator's risk charge is 30%, and the asset's market value eventually doubles to $200.

Scenario A: Held at Market Value (The "Economic Value" approach)

• Available Capital: Because the asset is marked to market, the $100 unrealized gain is recognized on the balance sheet. Your equity increases by $100.

• Required Capital: The regulator requires a 30% buffer against the new $200 value. Your required capital increases from $30 to $60 (a $30 increase).

• Net Impact: You gained $100 in recognized equity, but only had to "lock up" $30 of it. This creates $70 of newly freed-up capital that you can use to underwrite more insurance or fund other investments.

Scenario B: Held at Carrying/Book Value (The Eurobank situation)

• Available Capital: The asset remains on the balance sheet at $100. You do not get to recognize the $100 unrealized gain, so your equity does not increase.

• Required Capital: The regulator requires 30% against the $100 carrying value. Your required capital stays at $30.

• Net Impact: Because you haven't recognized the gain in your Available Capital, you miss out on that $70 of newly freed-up capital.

[djokovic1]

Thank you @gfp for clearing up my ignorance and also showing us the value of AI

 

So the takeaway is the opposite of my initial intuition. I.e you want as little of assets held at book value and rather prefer M2M. (As long as we think Fairfax is good at investing, which I think most of us do)

[gfp]

9 minutes ago, djokovic1 said:

Thank you @gfp for clearing up my ignorance and also showing us the value of AI

 

So the takeaway is the opposite of my initial intuition. I.e you want as little of assets held at book value and rather prefer M2M. (As long as we think Fairfax is good at investing, which I think most of us do)

 

It's even worse if they are above equity method and into the range of consolidating because Statutory accounting (insurance regulators) hates goodwill and limits how much they will count towards capital.  

[djokovic1]

Yes makes sense, I was missing the M2M benefit of the additional equity you get from gains which can assist with further compounding. Thanks for clearing it up!

[Maverick47]

3 hours ago, gfp said:

 

I was going to write out a thing but instead I'm going to drink this glass of wine and let Gemini point out the misunderstanding ->

----------AI CONTENT BELOW THIS LINE ---- BEWARE!! ---- AI IS A BUBBLE AND SHOULD BE IGNORED ---------

 

 

Here is a straightforward breakdown of why holding an appreciated asset at carrying value (book value) is a mathematical disadvantage for an insurer's capital position:

The Math: Book Value vs. Market Value

Insurance regulators (like OSFI in Canada or the NAIC in the US) determine an insurer's capital health by comparing their Available Capital to their Required Capital. Regulators assign a "risk charge" to different asset classes. For standard equities, this charge is usually around 30% to 40%.

Let's use a hypothetical example where an insurer buys an equity stake for $100, the regulator's risk charge is 30%, and the asset's market value eventually doubles to $200.

Scenario A: Held at Market Value (The "Economic Value" approach)

• Available Capital: Because the asset is marked to market, the $100 unrealized gain is recognized on the balance sheet. Your equity increases by $100.

• Required Capital: The regulator requires a 30% buffer against the new $200 value. Your required capital increases from $30 to $60 (a $30 increase).

• Net Impact: You gained $100 in recognized equity, but only had to "lock up" $30 of it. This creates $70 of newly freed-up capital that you can use to underwrite more insurance or fund other investments.

Scenario B: Held at Carrying/Book Value (The Eurobank situation)

• Available Capital: The asset remains on the balance sheet at $100. You do not get to recognize the $100 unrealized gain, so your equity does not increase.

• Required Capital: The regulator requires 30% against the $100 carrying value. Your required capital stays at $30.

• Net Impact: Because you haven't recognized the gain in your Available Capital, you miss out on that $70 of newly freed-up capital.

I think that AI missed the fact that under statutory accounting, regulators mark equities to market.  So Scenario B wouldn’t be applicable for statutory accounting, since the Eurobank stake is common equity.

[wondering]

Dexterra article https://www.theglobeandmail.com/gift/c87e0f0f35a1821507db493c59625a086c930e49605b3becee04a73939c1c7b4/GLFNYQ3TFNDWLP3VRWWOAUFEZA

[Crip1]

3 hours ago, wondering said:

Dexterra article https://www.theglobeandmail.com/gift/c87e0f0f35a1821507db493c59625a086c930e49605b3becee04a73939c1c7b4/GLFNYQ3TFNDWLP3VRWWOAUFEZA

Thank you for posting this. I had virtually zero knowledge of Dexterra so this was a good read. Wondering if anyone on the board as bought in to Dexterra? I had a nice chunk of Eurobank but my broker (Schwab) is no longer able to make purchase on my behalf, which was a big negative for me as I expected to hold Eurobank for a long, long time.

 

-Crip 

[anshulp]

Looks like it is up and running

[Parsad]

Would Atlas benefit from the recent spike in shipping rates through the Gulf? 

 

As well, is Fairfax underwriting any policies on shipping in the area with the massive spike in insurance that the U.S. government is now covering? 

 

Cheers!